Guosheng: Macro and supply-demand balance resonate, copper sector bullish market is expected to accelerate.

Guosheng released a research report, stating that looking back on 2025, the continuous disruptions at the mining end have exceeded market expectations, and a shortage pattern for 2026 has been established. According to the bank's analysis, without considering unexpected disturbances, it is expected that the incremental copper mine output in 2026 will only be 630,000 tons, which will be difficult to fill the gap caused by demand growth. The copper sector in 2026 is expected to continue to benefit from performance and valuation triggers, and recommends focusing on companies such as Zijin Mining Group (601899.SH), CMOC Group Limited (603993.SH), Zangge Mining (000408.SZ), CHINFMINING (01258), Jchx Mining Management (603979.SH), and Western Mining (601168.SH). Main points of Guosheng's analysis are as follows: Top mining companies saw negative growth in production in the first three quarters, indicating a pessimistic outlook for 2025-2026. According to the bank's tracking of 15 global mining companies (accounting for 54% of global production), the copper production of these companies decreased by 19,000 tons year-on-year in the first three quarters, with 6 companies experiencing a decline and 9 companies achieving growth. Factors contributing to the decline include reduced ore grades and operating rates in Freeport Indonesia and South American mines, lower ore grades and recovery rates in Glencore's raw ore, and reduced ore grades and recovery rates at the Collahuasi copper mine owned by Anglo American Resources. Twelve companies that have disclosed production guidance for 2025 are expected to see a production decrease of 309,000 tons, while eight companies that have disclosed production guidance for 2026 are expected to see an increase of 219,000 tons, but the actual production may not reach this level. Macroeconomic situation: In 2026, the critical year for US-China relations coincides again, supporting the bullish copper price acceleration. In 2025, commodity prices were generally affected by the roller-coaster disruptions in US-China relations, and the US decision to suspend a 24% tariff on Chinese goods for one year during the Jilong negotiations became a new normal. Looking ahead to 2026, with the upcoming midterm elections in the United States and China entering the beginning of the thirteenth five-year plan, it is a year when the critical years for the two countries coincide again since 2006. In this context, US foreign policy towards China in 2026 may remain relatively restrained, and the US and China may experience a resonance of policy easing and monetary easing," with copper price volatility potentially lower than this year on one hand, and the copper price bull market expected to accelerate on the other. It is anticipated that the first half of 2026 may see a reflation trade: After each soft landing and rate cut, the copper price and the US manufacturing PMI typically stabilize and rebound 3-6 months later. Starting from the rate cut on September 18th, the fundamentals recovery is likely to correspond to the first and second quarters of next year. In addition, in the short-term macro-environment with headwinds, the reason why the copper price has remained strong above $10,500 and showed greater resilience than in the past after rate cuts is due to the supply side. Therefore, the bank believes that once the economic fundamentals improve, the copper price may demonstrate a more elastic performance surpassing previous levels. Supply side: Supply contradictions will still exist in 2026, and a higher copper price incentive is needed for CAPEX to rise. The bank believes that the concentrated supply disruptions are not simply due to unexpected Black Swan" events, but rather a result of the inevitable lack of medium to long-term capital expenditures. According to Bloomberg, the capital expenditures of 69 copper mining companies in 2024 amounted to $92.3 billion, only 73% of the peak of the previous cycle in 2013, which further decreased to 52% after considering inflation. Looking at the capital expenditure guidance from 2025 to 2027, it appears to be conservative. The sample companies' capital expenditure/operating cash flow ratio in 2024 was 58%, significantly lower than the peak of 100% in 2013, indicating that mining companies are still relatively restrained and cautious in terms of capital expenditures. Demand side: Grid demand remains high, while demand for new energy and AI is emerging. From January to October 2023-2025, investment in the grid has remained high, serving as a rigid support for the post-cycle new energy sector, and the thirteenth five-year plan" is expected to maintain a high level of prosperity. From January to October 2025, domestic production of electric vehicles increased by 33.1% year-on-year, and with the gradual reduction of purchase subsidies in 2026, the growth rate may slow down, but global demand is still expected to maintain double-digit growth. In addition, the demand for copper from AI data centers has become an undeniable increment, with the bank estimating that the global copper usage in data centers was 417,000 tons in 2024, and is expected to grow to 1,197,000 tons by 2030. The supply-demand gap widens from 2025 to 2029, and the center of gravity for copper prices gradually shifts upwards. According to the bank's calculations, the CAGR for copper demand from 2025 to 2029 is expected to be 3.7%, while the CAGR for copper supply is expected to be 2.2%. In terms of supply-demand balance, the bank expects a shortage of refined copper of 470,000/520,000/510,000/1,220,000/2,440,000 tons from 2025 to 2029. If there is no mining end acceleration triggered by high prices, the supply-demand gap is expected to widen. Low inventory levels serve as a buffer zone for supply-demand balance, amplifying the elasticity of copper prices. The inventory days in the US region are currently at 91.2 days, the highest level in history; however, the inventory days in non-US regions are as low as 7.4 days, ranking in the 15th percentile for the past 9 years, indicating that the global copper industry chain is in a fragile supply-demand balance. Risk factors: Uncertainty in US trade policy, unexpected increase in supply, calculation error risk, and the risk of historical experience failing.