Copper prices surged and then retreated in May, yet resilience remains

1、 Trend analysis

In May, copper prices fluctuated at a low level at the beginning of the month, surged sharply to a high point in the middle of the month and then fell back, and fluctuated in the high range in the later part of the month. At the beginning of the month, the copper price was 101498.33 yuan/ton, and at the end of the month, the copper price rose to 104843.33 yuan/ton, with an overall increase of 3.33% and a year-on-year increase of 34.01%.
In the first and second half of May, the main copper contract price was higher than the spot price, and in the middle of May, the spot copper price was higher than the main contract price. As the end of the month approaches, the main composite price of copper is higher than the spot price of copper, indicating that copper prices will be under pressure in the future.
According to LME inventory, LME copper inventory first rose and then fell in May. As of the end of the month, LME copper inventory was 389425 tons, a decrease of 2.09% from the beginning of the month.
Macroscopically, the US Iran situation remained unresolved throughout the month: a draft ceasefire memorandum was released at the beginning of the month, negotiations were repeated in the middle of the month, and a 60 day memorandum of understanding was reached at the end of the month. Copper prices fluctuated sharply with the news. In April, both CPI and PCE in the United States climbed to around 3.8%, and inflation exploded across the board. Market expectations for the Federal Reserve to raise interest rates or even in 2027 have risen, and the high level of the US dollar has formed a core suppression on copper prices. On May 14th, the leaders of China and the United States reached a new positioning for a constructive strategic stable relationship, which became the only positive signal at the macro level this month. In April, the domestic industrial added value increased by 4.1% year-on-year, and the manufacturing PMI was in the expansion range, indicating a continued positive policy.
Supply side: Copper concentrate processing fees (TC) have historically fallen below -100 US dollars per dry ton and dropped to -108.63 US dollars per ton at the end of the month, reaching a historic low level. The structural shortage in the mining sector continues to deepen. The driving factors for the sharp decline in TC include the delayed resumption of production in the Grasberg mining area until the end of 2027, concerns about energy supply in Peru, and the rise in sulfur prices pushing up the price of smelting acid. China’s copper concentrate imports in April saw a significant year-on-year decline of 19.57%, marking the first year-on-year decline in over five years. The smelter continued to operate under extreme negative TC, relying on excess profits from sulfuric acid as a hedge. However, since China restricted sulfuric acid exports in May, sulfuric acid prices have fallen and profit sources have been compressed. In May, the maintenance of the smelting plant will proceed in an orderly manner, and it is expected that the production of electrolytic copper will decrease to 1.1675 million tons month on month, with domestic supply continuing to be tight.
Downstream: Traditional sectors have been significantly suppressed by high copper prices, with copper cable companies operating at a rate of only 63.23% in May, a significant decrease of 20.26 percentage points year-on-year. The operating rate of refined copper rods has fallen to 61.05% month on month, indicating a clear fear of high prices and a focus on essential procurement in downstream areas. Power infrastructure remains the biggest support, State Grid’s investment continues to increase, the proportion of ultra-high voltage projects has increased, and cable orders have shown stable performance. Emerging fields maintain high prosperity: the penetration rate of new energy vehicles has increased to 56.5%, the construction of AI computing power centers has driven the demand for high-end copper products, and orders for high-voltage electromagnetic flat wires are scheduled for the second half of 2027. The demand for construction real estate is flat, and although the price difference between refined and scrap is high, the elasticity of scrap copper supply is insufficient, and the logic of refined copper substitution continues.

Comprehensive analysis of influencing factors
Positive factors: TC breaks through negative triple digits for the first time, and the shortage in the mining sector deepens; Domestic social inventory has fallen to historical lows, and spot premiums remain strong; Power grid and AI infrastructure are essential to support the bottom line; The United States hoards goods and exhausts non US market supply, with Goldman Sachs estimating a non US shortfall of 640000 tons by 2026; Grasberg and Kamoa Kakula’s resumption of production has been fully postponed until 2028, resulting in a reduction of global mine supply by 350000 tons in 2026; The supply of scrap copper is tight, and the ability to replace refined copper is limited.
Negative factors: The situation between the United States and Iran is fluctuating, and geopolitical risk preferences are frequently switching; US inflation exceeds expectations, and expectations of interest rate hikes suppress market sentiment; The combination of traditional consumption off-season and high copper prices has suppressed spot demand, resulting in a significant year-on-year decrease in cable operating rates; The new policy for sulfuric acid export will compress smelting profits; LME and COMEX inventories are running at high levels, with weak overseas demand; The net holdings of CFTC funds indicate insufficient willingness of speculative funds to chase higher prices.
In summary, there are still smelters undergoing maintenance on the supply side in June. If sulfuric acid export restrictions lead to a price drop, it may trigger substantial production cuts in smelters, forming a structural bullish trend. The traditional off-season on the demand side continues, but power infrastructure and emerging fields provide medium – to long-term support. On a macro level, if the FOMC’s statement falls short of expectations and becomes hawkish or opens a window for liquidity repair; If the US Iran agreement is implemented, it is expected to push copper prices above their previous highs. If it breaks, the geopolitical risk premium will rise again. Looking ahead to June and the third quarter, it is expected that copper prices will continue to fluctuate widely at high levels, with core variables being the progress of the US Iran 60 day memorandum approval and the FOMC meeting on June 17th.