Goldman Sachs and Citi have turned increasingly bullish on copper, citing mounting supply-side risks across the global market. Goldman Sachs and Citi highlighted disruptions at Kamoa-Kakula, delays at Grasberg, and declining ore grades at major mines as key concerns. Meanwhile, demand from AI infrastructure, power-grid expansion, and clean-energy projects continues to strengthen. Both banks believe copper prices could remain well supported in the coming months.

SMM Morning Meeting Minutes: Last Friday evening, LME copper opened at $13,624.5/mt. In the early session, it experienced wild swings and dipped to $13,575.5/mt. Subsequently, the center of copper prices shifted upward, reaching a high of $13,678/mt, before fluctuating downward to finally close at $13,635/mt, up 0.18%. Trading volume reached 16,200 lots, and open interest stood at 269,000 lots, a decrease of 3,435 lots from the previous trading day, indicating bears reducing positions. Last Friday evening, the most-traded SHFE copper 2607 contract opened at 104,870 yuan/mt. In the early session, the center of copper prices fluctuated downward, touching a low of 104,420 yuan/mt. Subsequently, it fluctuated upward, reaching 105,280 yuan/mt, before moving sideways to finally close at 105,090 yuan/mt, up 0.58%. Trading volume reached 33,600 lots, and open interest stood at 172,000 lots, an increase of 627 lots from the previous trading day, indicating bulls adding positions.

Preliminary data indicated that global copper mine production in Q1 2026 was basically flat, with copper concentrates production declining by 1.1%, offset by a 3.3% increase in solvent extraction-electrodeposition (SX-EW) production.Although global mine production benefited from additional output from capacity ramp-up at projects in several countries, significant declines in copper concentrates production in Chile, the DRC, and Indonesia offset global growth.In Indonesia, copper concentrates production at the Grasberg mine fell by 42%, as the severe mud inflow event that occurred in September last year continued to impact production at the mine.

The International Copper Study Group (ICSG) released preliminary data on global copper supply and demand for March 2026 in its monthly bulletin published in May 2026. Preliminary data indicated that global copper mine production in Q1 2026 was basically flat, with copper concentrates production declining by 1.1%, offset by a 3.3% increase in solvent extraction-electrodeposition (SX-EW) production. Although global mine production benefited from additional output driven by capacity ramp-up of projects in several countries, significant declines in copper concentrates production in Chile, the DRC, and Indonesia offset global growth. In Indonesia, copper concentrates production at the Grasberg mine fell by 42%, as the severe mud inflow incident that occurred in September last year continued to affect the mine's production. Chile's mine production declined by 5.8%, with increased production at the Collahuasi and Quebrada Blanca mines offset by production cuts at the Spence, El Teniente, Escondida, and Los Pelambres mines. The DRC's mine production is estimated to have grown by only 0.5%: SX-EW production increased by approximately 10%, but was partially offset by a 36% decline in copper concentrates production due to reduced output at the Kamoa mine (affected by the 2025 earthquake event). In Peru, copper mine production grew by 3.3%, primarily driven by increased production at the Antamina, Las Bambas, and Antapaccay mines, which more than offset production declines at Southern Peru Copper, Quellaveco, and Marcobre. Mongolia's copper concentrates production is estimated to have grown by approximately 36%, benefiting from the capacity ramp-up of the Oyu Tolgoi underground project. Preliminary data indicated that global copper cathode production grew by approximately 4.5% in Q1 2026, with primary copper (electrolysis and ore electrodeposition) production increasing by 3.8% and secondary copper (from scrap) production increasing by 7.6%. China and the DRC, which currently account for approximately 60% of global production, saw their combined production increase by an estimated 9% (China 8.8%, DRC 10%). Excluding these two countries, global copper cathode production declined by approximately 1.4%. Chile's copper cathode production fell by 11.7%, with copper cathode (from concentrates) production declining by 24% due to smelter operational constraints and maintenance, and electrodeposition copper production declining by 5.7%. Production in Asia (excluding China) is estimated to have declined by 4%, mainly due to production decreases in Japan, Indonesia, and the Philippines. India's production is estimated to have grown by 25%, benefiting from improved capacity utilization rates and the capacity ramp-up of the Adani smelter. Global secondary refined copper production (from scrap) increased by 7.6%, mainly driven by growth in China. Preliminary data indicated that global apparent refined copper usage grew by 0.8% in Q1 2026. Although global usage excluding China was estimated to have grown by 1.7%, China's apparent demand (excluding bonded warehouse/unreported inventory changes) was estimated to be basically flat, affected by a 40% decline in China's net imports of copper cathode. China currently accounts for approximately 58% of total global refined copper usage. The preliminary global refined copper supply-demand balance indicated an oversupply of 396,000 mt in Q1 2026. In compiling the global market balance, ICSG used China's apparent demand calculation method, which does not account for changes in unreported inventories. However, to facilitate global market analysis, an adjustment item has been added to the attached tables — "Global refined copper balance adjusted for Chinese bonded warehouse inventory changes" — which adjusts the global refined copper balance based on the average bonded warehouse inventory change estimates from two Chinese copper market consultancies. In Q1 2026, the global refined copper balance based on China's apparent usage (excluding bonded warehouse/unreported inventory changes) showed a preliminary oversupply of approximately 396,000 mt, compared with an oversupply of approximately 135,000 mt in the same period of 2025. The global refined copper balance adjusted for estimated changes in Chinese bonded warehouse inventories showed a market oversupply of approximately 386,000 mt. Copper Prices and Inventories: Based on the average estimates from two independent consultancies, Chinese bonded warehouse inventories were estimated to have decreased by approximately 10,000 mt from the end of 2025 levels during the first three months of 2026. As of the end of April 2026, copper inventories at major metal exchanges (LME, COMEX, SHFE) totaled 1,148,760 mt, the highest level since January 2003. Inventories increased by 404,648 mt, or 55%, from the end of December 2025, with LME up 253,350 mt, Shanghai Futures Exchange up 46,683 mt, and COMEX up 104,615 mt. The LME spot copper average price in April was $12,891.38 per mt, up 3% from the March average price of $12,498.98 per mt. The 2026 copper price high and low were $14,097 per mt (May 13) and $11,826 per mt (March 19), respectively, with a year-to-date average price of $12,947.22 per mt, up 30% from the 2025 average price. Global Refined Copper Supply and Demand Trends Notes: 1/ Refers to apparent usage 2/ Refined copper balance = production - usage 3/ Seasonally adjusted balance data 4/ Global refined copper balance adjusted for estimated changes in Chinese bonded warehouse inventories (Wenhua Composite)

I. Market Status: Negative TCs Enter Triple Digits, Structural Tightening in Copper Concentrate Supply-Demand As global smelter capacity continues to climb, China, as the world's largest copper smelting country, faces a continuously declining self-sufficiency rate in copper concentrates and rising external dependency. Compounded by geopolitical crises, production cuts by ex-China miners, declining mine grades, and frequent production accidents, the copper industry has undergone a dramatic shift from "tight balance" to "structural deficit." Currently, the global copper concentrate market has fallen into a state of persistently tight supply. On May 15, the SMM Imported Copper Concentrate Index (weekly) reported -$102.84/dmt, breaking through the -$100/dmt threshold for the first time in history, setting a record negative depth. The payable indicator for 20%-grade domestic trade ore was 97.5%-98.5%, up 0.5 percentage points MoM. Supply-side factors driving TCs persistently lower continue to accumulate. 1) Full production resumptions at Freeport's Grasberg mine have fallen short of expectations. According to Freeport's Q1 earnings call, the company plans to achieve full production resumptions by the end of 2027; 2) The Peruvian government signed Emergency Decree No. 003-2026 on May 11, triggering widespread market concerns over the country's energy supply and copper mine output; 3) Geopolitical disruptions—the continued blockade of the Strait of Hormuz has driven sulfur prices persistently higher, pushing smelting acid prices to rise continuously. With smelting profits climbing, smelters' purchase willingness has increased, driving copper concentrate TCs persistently lower. Customs data showed that China's copper ore and concentrate imports in April 2026 were 2.352 million mt in physical content, down 19.57% YoY; cumulative imports from January to April were 9.915 million mt in physical content, down 0.8% compared to the same period last year. Since December 2020, China's copper concentrate cumulative imports had maintained positive YoY growth; this marks the first decline in over five years. II. Smelter Operating Rates Stay High Contrary to the intuition of "industry-wide losses" implied by deeply negative TCs, operating rates at China's copper smelters have not experienced a cliff-like decline. From a pure smelting perspective, operating willingness and actual profitability across different types of enterprises show significant divergence. Under the extreme environment of deeply negative TCs, the core reason China's copper smelters can maintain relatively resilient operations is that by-product revenues are becoming the key variable determining break-even. Meanwhile, China's copper cathode production declined MoM due to the maintenance peak. SMM data showed that China's copper cathode production in April fell 2.26% MoM. Cumulative copper cathode production from January to April 2026 reached 4.7067 million mt. However, according to SMM, some smelters postponed their maintenance plans or completed crude smelting maintenance ahead of schedule to capture revenue from the by-product sulphuric acid. III. Breakdown of Smelter Profit Sources (i) Sulphuric Acid: The Strongest Profit Contributor at the Current Stage Sulphuric acid is currently the most important by-product profit source for smelters. In pyrometallurgy-based copper cathode production, approximately 3-4 mt of sulphuric acid is produced as a by-product for every 1 mt of copper cathode. As of May 15, the SMM China Copper Smelting Acid Index stood at 1,665 yuan/mt, up 83.7% from the beginning of the year. Sulphuric acid prices currently stay high, meaning sulphuric acid revenue can offset a considerable portion of the revenue loss caused by negative TCs. However, this "sulphuric acid moat" is facing policy challenges. China suspended exports of ordinary industrial sulphuric acid and smelting by-product sulphuric acid starting in May for a period of 8 months. The export ban is not intended to suppress domestic sulphuric acid prices, but rather to prioritize domestic supply for agricultural phosphate fertiliser production and strategic industries such as new energy. Demand side, overall sulphuric acid demand remains tight. Although downstream sectors including phosphate fertiliser, titanium dioxide, and new energy materials saw declining operating rates due to high-priced raw materials, just-in-time procurement still exists. Meanwhile, the supply side is also constrained by concentrated smelter maintenance and high sulphur-based acid production costs, with industry-wide capacity utilization rates at low levels. Cost side, firm sulphur prices provide bottom support for sulphuric acid; supply side, concentrated maintenance limits downside room; demand side, although weak, has not yet formed a substantial enough impact to break down high prices. This means sulphuric acid continues to serve as a profit pillar for smelters. (ii) Precious Metal Recovery: "Incremental Game" Under High Copper Prices In addition, copper concentrates typically contain associated precious metals such as gold and silver, which can be recovered through anode slime processing during smelting. Copper prices are currently at historically high levels, and gold prices also fluctuate at highs, greatly enhancing the economics of precious metal recovery. According to SMM market sources, when gold and silver prices are at high levels, raw materials with impurities rich in gold and silver are assigned extremely high added value. The profit contribution of precious metal recovery to smelters is reflected in: smelters can achieve recovery utilization rates exceeding the gold and silver payable indicators through refined processing, profiting from spot smelting revenue. This portion of revenue is often a significant component of smelters' comprehensive profit structure. However, as gold and silver prices continue to rise, suppliers in the copper concentrates spot trade are simultaneously raising gold and silver payable indicators. The continuously rising precious metal payable indicators and payable benchmark pose an increasingly severe challenge to smelter profitability. IV. Future Trends: Coexistence of Industry Landscape Evolution and Technology Upgrade Requirements However, industry chain profits are irreversibly shifting toward the upstream ore side. Under the medium and long-term landscape of persistently tightening copper concentrates supply and demand, the scarcity value of the resource side is being reassessed by the market. As the copper concentrates supply-demand gap persists over the medium and long-term horizon, and smelters' bargaining power will remain under pressure over the long term. The market is widely concerned about whether TC can quickly pull back in tandem once the continuously rising sulphuric acid prices reach a turning point. Facing the long-term trend of profit squeeze at the mine end and losses in the smelting segment, the future landscape of the copper smelting industry will evolve in the following directions: Direction 1: Integrated consolidation extending upstream. Enterprises with upstream mine assets will have a significant advantage in profitability. Direction 2: Technological upgrades to achieve differentiated competition. Against the backdrop of narrowing profit margins from non-payable metals, the technological barriers of smelters will become increasingly important. Those who can more efficiently extract valuable metals from low-grade ore or complex ore will seize the initiative in the industry reshuffle. Under the extreme environment of persistently negative TCs, sulphuric acid by-product revenue and precious metal recovery are the core profit pillars currently sustaining smelter operations. The supply-demand pattern dictates that the pricing power and profit margins at the mine end will continue to outperform those at the smelting end. The copper smelting industry is transitioning from the traditional model of "earning TCs" to a new competitive landscape of "resource control + technological barriers + integrated operations."

The recent sharp rise in copper prices has been accompanied by several headline trading themes: the widening LME-COMEX spread, record-low copper concentrate TC, the energy crisis in Peru, repeated uncertainty around the restart pace at Grasberg, and the substitution effect between refined copper and copper scrap in China. At a deeper level, however, these events can all be understood through one central theme: the global emphasis on copper resource security is continuing to rise, and the market is repricing the entire copper value chain. Since 2025, the US has continued to strengthen the strategic importance of copper. In its Section 232 investigation into copper imports, the US explicitly included copper, copper concentrates, refined copper, copper scrap and related derivative products within the scope of national security review, and required an assessment of how US dependence on copper imports may affect national security and industrial resilience. Subsequent policy discussions also proposed that part of the high-quality copper scrap generated in the US should be prioritized for domestic sales. Against this backdrop, the COMEX premium over LME is no longer merely a simple screen-traded spread. It has become a price signal through which the US market attracts globally deliverable refined copper resources. If the LME-COMEX spread continues to widen and becomes sufficient to cover transportation, financing, warehousing, delivery and policy risks, it may attract some freely tradable material to the US market. Although this round of trading is different from 2025, the market is already pricing in a wider spread. While market rumors continue to circulate, the COMEX premium has already reflected the US market’s ability to attract resources. Whether this will truly translate into changes in physical trade flows still depends on LME inventories in the US, COMEX inventories and the ratio of cancelled warrants. If US LME inventories decline, the cancelled warrant ratio rises, and COMEX inventories increase at the same time, it would suggest that material may be moving from the LME system into the COMEX system. In that case, the decline in deliverable LME resources could create room for the LME nearby backwardation structure to strengthen. Once LME shifts from contango into backwardation, the impact will further transmit into the LME-SHFE structure. A stronger LME nearby structure would compress China’s import arbitrage ratio and could even reverse the LME-SHFE spread, passively opening China’s export window. On the one hand, a stronger LME structure would raise smelters’ raw material costs and offshore procurement costs. On the other hand, if China’s domestic import ratio remains weak, exports may be forced to recover in order to repair regional price spreads. Under extreme market conditions, it will be necessary to closely monitor LME time spreads, especially the TOM-NEXT spread. If TOM-NEXT strengthens rapidly, it usually indicates that pressure on nearby deliverable resources is rising, and the market may shift from normal spread trading to pricing the risk of a squeeze. For China, the core logic is to secure raw material supply. Copper concentrate TC has fallen to around -$107 to -$103/mt , indicating that miners still hold strong bargaining power and that smelters’ raw material procurement pressure continues to rise. In the short term, high sulphuric acid prices can still partly offset smelters’ margin losses. However, against the backdrop of China restricting or banning some sulphuric acid exports after May, further upside room for domestic acid prices may be limited. If sulphuric acid prices fall while TC remains deeply negative, smelters’ profit structure will become even more distorted. If this is further combined with a weakening LME-SHFE structure and a deterioration in the import arbitrage ratio, smelters will simultaneously face rising raw material costs, processing fee losses and declining by-product revenue. Another key domestic signal is copper scrap. At present, although China’s refined copper social inventory continues to decline under the weakening substitution effect between refined copper and scrap, the sharp increase in copper scrap inventories is also a reality. Affected by reverse invoicing and the fair competition review regulations, tax costs for copper scrap processors have increased. Scrap with invoices has become scarce and is flowing more toward smelters, reducing the actual amount of scrap available to processors and thereby supporting refined copper consumption. However, this support is not without limits. If copper prices continue to rise, the refined copper-scrap spread widens again, and scrap inventory pressure continues to build, the incentive for scrap to substitute refined copper will strengthen. At that point, refined copper demand may decline sharply under the combined effect of high copper prices suppressing consumption and the recovery of scrap substitution, while China’s destocking pace may slow or even reverse into inventory accumulation. The recent market discussions around Peru’s energy crisis and the delayed recovery pace at Grasberg are more emotional triggers under the broader resource security theme, rather than decisive variables that have already changed the current refined copper balance — in other words, they are more of an excuse for the market. The energy issue in Peru has raised market attention to the stability of energy supply for South American mines. As for Grasberg, Freeport Indonesia previously mentioned that full recovery could be delayed until 2028, but Freeport-McMoRan later stated that it still maintained its plan to restore full production by the end of 2027, showing that there is still a gap between market expectations and the actual impact. These events have not caused severe damage to the global physical refined copper balance in the short term. However, against the backdrop of deeply negative TC, China-US resource competition and widening cross-market spreads, any uncertainty at the mine end will be amplified by the market into a supply security premium. Looking ahead, four groups of indicators deserve close attention. First, the LME-COMEX spread, US LME inventories, COMEX inventories and the cancelled warrant ratio. If the spread widens together with a visible transfer of material from LME to COMEX, there is still upside room for LME nearby backwardation. If US inventories remain high, the spread is more likely to stay at the level of policy and financial pricing. Second, LME time spreads, especially Cash/3M and TOM-NEXT. If TOM-NEXT strengthens abnormally, the market should watch for nearby structure risk. Third, China’s refined copper-scrap spread and copper scrap inventories. If the refined copper-scrap spread widens and scrap flows recover, the support to refined copper consumption will weaken. Fourth, TC, sulphuric acid prices and the LME-SHFE ratio. If TC continues to deteriorate, acid prices fall and the ratio weakens, smelters’ operating pressure will rise significantly. Overall, amid the repricing of copper under resource security competition, a price transmission relationship has emerged across COMEX, LME and SHFE, which is the direct driver behind the recent copper price rally. Under the influence of these indicators, capital flows and physical trade flows may be reshaped again. In this environment, securing supply chain stability and cost safety remains a long and difficult process.