It is difficult to make sense of a market where record prices coincide with oversupply, and where different parts of the value chain swing between euphoria and distress. Among the most critical of all commodities, copper continues to confound expectations.
Desperately seeking minerals
Among copper’s sub-markets, the copper concentrate market is currently the tightest by far. Output from mines in the Andes is slowly declining as they age. South American output is set to contract by 2.5% in 2026, dragged down by Chile, where second-quarter production was at its lowest in almost 20 years. With difficult weather conditions at the start of the year and structurally declining ore grades at the country’s major mines, the additional supply needed to meet ever-stronger medium-term demand must therefore be found elsewhere.
Attention is thus turning to the African Copperbelt, located on either side of the Congo−Zambia border. Africa has doubled its mining output in the space of seven years and now accounts for 20% of global supply. The Democratic Republic of the Congo accounts for three quarters of Africa’s output, driven by two giants, Kamoa-Kakula and Tenke Fungurume, both with significant Chinese ownership. However, local geology creates a major difference compared with Andean mines: most of the ores produced are difficult to concentrate and therefore often have to be refined locally into metallic copper; exporting them in their unprocessed form would not be economically viable. The African copper sector is thus predominantly largely vertically integrated by its very nature. However, the particular nature of African copper production means producers are heavily dependent on supplies of sulphuric acid, a reagent essential for refining these ores. The market for sulphuric acid has been severely disrupted by the repercussions of the Iran−US conflict. Moreover, it’s important to remember that, here again, mining is subject to significant hazards; for example, Kamoa-Kakula was hit by a major earthquake in 2025, wiping out more than 10% of its annual output. The construction of a processing plant adjacent to the mine also reduces the amount of much-needed ore available on the market.
The picture in Asia is scarcely any better. Part of Indonesia’s Grasberg mine, operated by US-based Freeport-McMoRan and which on its own accounts for a quarter of Asia’s output, was engulfed by a mudslide late last year and has since been operating at only around half its capacity. With the ore market tighter than ever, copper refiners must fight to preserve their margins.
Shifting the burden of margin pressure
Non-integrated copper refiners, who buy their ore on the open market, thus find themselves in an unusual situation. Under their purchase contracts, they typically receive payments known as TC/RC[1], intended to cover the costs of processing the ore and provide a profit margin. However, this mechanism has now reversed: instead of being paid for processing, Chinese refiners buying concentrate in the spot market in September 2026 were willing to pay around $200 extra per dry tonne to secure their supplies. It is thus now the mine operators that are locking in additional margins, over and above the intrinsic value of the metal contained in the ore. Estimates suggest that a typical Chinese refiner is currently losing around $150 per tonne of copper concentrate purchased in the spot market and processed, while the terms of longer-term contracts remain more favourable. On the plus side, most of the ores processed generate sulphuric acid during their conversion into metallic copper, enabling refiners to earn substantial additional revenue from this by-product in the first half of the year, against the backdrop of the closure of the Strait of Hormuz.
However, we must not allow the supply crisis to obscure a more surprising reality. China, which consumes around half the world’s copper and refines a similar amount, continues to increase its processing capacity at a sustained pace, regardless of prevailing conditions. With an average annual growth rate of over 6% since 2020, China’s copper processing capacity is growing, on average, two and a half times faster than global mining output. Meanwhile, Indonesia, with much smaller processing volumes in absolute terms, is expanding its capacity at a rate of 11% a year.
Record prices… in an oversupplied market
The same pace of production that is pushing the ore market towards a deficit is, for the time being, creating an oversupply of refined copper. The market is expected to be in modest surplus in 2026, but appearances can be deceptive. The structural increase in demand expected over the next few years is likely to shift the market from surplus to deficit by 2030, given the difficulty of maintaining sufficient mining output. Although recycling plays a vital role in balancing supply and demand, it will not on its own be sufficient to meet projected demand growth of around 2% a year, driven primarily by increasing electrification in developed and developing economies.
Yet it is against this backdrop that market prices are hovering around the symbolic $15,000-per-tonne mark, an all-time high. The explanation for the apparent contradiction between tight physical inventories and an overall supply surplus comes down to politics. The prospect of US import tariffs on cathode copper – the standardised product traded on metal exchanges – has fuelled a massive influx of imports into the US since the beginning of the year, with traders and financial market participants hoping to cash in on an attractive arbitrage opportunity if the new “Trump tariffs” come into effect. The Secretary of Commerce’s final decision keeps being pushed back and appears far from straightforward in a country where domestic production capacity falls well short of requirements, leaving it heavily reliant on imports. The initial proposal of 15% tariffs in January 2027, rising to 30% the following year, remains the default scenario for market participants.
This rush to build up inventories on the Chicago Mercantile Exchange (COMEX) – the US metals exchange – has come at the expense of inventories on the London Metal Exchange (LME). At the end of September, the US accounted for nearly 70% of the world’s visible copper stocks. This situation reflects very tight supply in the short term. Indeed, the copper market has been in backwardation since August, which means short-term prices are higher than longer-term prices, indicating particularly strong near-term demand. If import tariffs are implemented, the copper market could gradually adopt a structure similar to that of the aluminium market, where the price of physical metal incorporates a significant regional premium reflecting local supply and demand constraints. Otherwise, the correction would be immediate and severe… until the good times return.
[1] TC/RC: Treatment Charges/Refining Charges.
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