China Post Securities: Tightening supply situation is established, copper market enters a new era of long-term prosperity.

China Post Securities released a research report stating that in the long term, the copper market is stepping into a strong cycle driven by "hard supply constraints" and "new demand dynamics". On the supply side, insufficient capital expenditure and normalization of mine disruption rates will lead to long-term structural shortages. On the demand side, AI computing power and energy revolution are building strong and certain new demand pillars for growth. It is expected that the supply-demand gap will continue to exist until 2026, supported by loose liquidity, and the central price of copper is expected to rise strongly, with optimistic long-term prospects. Key points of China Post Securities: Investment Highlights The disturbance rate of copper mine production is increasing, long-term exploration expenditure is insufficient, and the supply of copper ores is long-term scarce. In 2025, due to reduced production of the Grasberg project due to mudslides, adjustments in production of the Kakula, Batu Hijau, QB2 projects, global disruptions in the copper mining supply side sharply increased and copper mine production is expected to be downgraded within the year. Future disruptions on the supply side of copper mines may be normalized, and the progress of mine restarts in 2026-2027 is not optimistic. Considering the limited large projects under construction, fewer newly approved projects and decreasing capital expenditure, copper concentrate production may remain flat or decline, leading to a reduction in global copper supply. AI and new energy investments continue to be prosperous, driving structural improvement in demand On the demand side, traditional demand as the basic support for copper remains relatively stable, with steady growth expected driven by domestic grid investments and high growth rates in emerging countries. The new demand brought by AI computing power, energy revolution, etc., has long-term and high certainty characteristics, driving the optimization of copper demand structure, and is expected to increase from 16% to 22% of the overall demand by 2030. From the perspective of supply-demand balance, even with the major copper mines globally restarted as scheduled and a relatively optimistic supply situation, the supply-demand of copper mines still maintains a tight balance state. Sudden events are likely to cause temporary supply-demand mismatches in the market, and the supply-demand gap is expected to continue in 2026, with LME copper prices potentially reaching $13,000 per ton, and Shanghai copper prices potentially exceeding 100,000 RMB per ton in the future as the supply decreases on the mining side and the supply-demand gap gradually widens. The Federal Reserve's interest rate cut cycle is about to begin, and loose liquidity will drive copper price increase Since October, there have been differences in the market in the Federal Reserve's interest rate cut path, coupled with short-term liquidity shortages triggered by government shutdowns, causing copper prices to be relatively under pressure. However, in 2026, in an environment of changing leadership at the Federal Reserve and easing tensions between the US and China, loose liquidity is expected to become mainstream, boosting the financial attributes of copper. Risk factors: Copper price fluctuations; risks of project progress exceeding expectations; downstream demand lower than expected; discrepancies between model assumptions and reality; policy risks, etc.