China Galaxy Securities: Regional Imbalance in Global Copper Supply, Focusing on Leading Domestic Copper Mining Companies

China Galaxy Securities released a research report stating that the global copper ore supply shortage and the escalating risk of regional refined copper supply imbalance, coupled with expectations of loose liquidity, are expected to continue to drive copper prices higher. It is recommended to pay attention to domestic leading copper mining companies. Since the beginning of this year, major disruptions in copper mines have caused the global copper ore production forecast for 2025 to continue to be revised downward, from an initial expectation of an increase of over 700,000 metric tons to virtually no increase for the whole year; and the global copper ore increment for 2026 is only slightly over 500,000 tons. With a large amount of smelting capacity under construction/plan domestically and internationally, it is expected that the global copper ore deficit in 2026 may further widen. Event: On December 3, LME copper registered warehouse receipts totaling 105,275 tons, a decrease of 32.3% compared to the previous year; canceled warehouse receipts totaled 56,875 tons, an increase of 802.78% year-on-year. Delivery instructions reached a new high since 2013, mainly from warehouses in Taiwan, China, and Korea. On December 3, LME three-month copper futures surged nearly 3%, briefly touching a historical high of $11,540 per ton, continuing the upward trend seen since November. As a result, on December 4, Shanghai copper futures broke through the psychological barrier of 90,000 yuan per ton for the first time, reaching a high of 91,450 yuan per ton during trading and closing at 90,980 yuan per ton, with a daily increase of 2.3%. Key points from China Galaxy Securities: Expectation of additional tariffs on U.S. copper leading to regional supply imbalance: Trump previously requested the U.S. Department of Commerce to reassess the domestic copper market situation by June 2026, at which time a phased implementation of refined copper import taxes will be evaluated. Given the possibility of further tariffs on refined copper by the U.S. in the future, U.S. copper is significantly higher priced than other regions, leading to the "siphoning effect" of U.S. copper causing global inventory distribution differentiation, with low inventory levels in non-U.S. regions potentially causing regional copper shortages in 2026. By the end of 2025, Chile's Codelco is expected to significantly increase refined copper supply premiums for 2026: quoting prices of $335-350 per ton for China, an increase of 275% from 2025; quoting prices of $325-345 per ton for Europe, an increase of 39% from 2025; quoting prices of $330 per ton for Korea, an increase of 288% from 2025, reflecting expectations of trade flow changes in 2026 and tight non-U.S. copper supply. The sharp increase in copper deliveries from LME Asian warehouses in December reflects anticipation of tight non-U.S. copper supply in 2026. The logic of the increasing risk of regional supply imbalance in 2026 is driving up copper prices. Continued scarcity in supply at the mining end, intensifying the conflict between mining and smelting: Major disturbances in copper mines this year have led to continuous downward revisions of the global copper ore production forecast for 2025, from an initial expectation of an increase of over 700,000 metric tons at the beginning of the year to virtually no increase for the whole year; and the global copper ore increment for 2026 is only slightly over 500,000 tons. With a large amount of smelting capacity under construction/plan domestically and internationally, it is expected that the global copper ore deficit in 2026 may further widen. In 2026, new overseas copper smelting capacity will also compete with domestic smelters for copper concentrate raw materials. Market expectations indicate that the long-term price for TC/RC in 2026 may significantly decrease from $21.25 per ton in 2025, possibly even approaching zero or negative values. In a sensitive period of negotiations on the long-term processing fees for 2026, to enhance their bargaining power, domestic smelters reached an agreement last weekend to reduce their copper refining production capacity by more than 10% in 2026 to improve the supply-demand fundamentals of copper concentrates. Furthermore, the Ministry of Industry and Information Technology may release policies to limit new smelting capacity that has led to a lack of domestic raw material supply control in recent years, to help domestic copper smelters gain greater bargaining power. At a critical point in the negotiations on long-term fees for copper smelting and processing in 2026, proposed production cuts by the mining and smelting sectors may accelerate the transmission of the expected copper ore shortage to refined copper. If domestic smelters reduce their production, it may shift the balance of refined copper supply and demand in 2026 from tight to scarce. Negotiations on long-term processing fees, intensifying conflicts between mining and smelting, may deepen expectations of a copper supply shortage in 2026, driving copper prices higher. Recycled copper becomes an important supplement to raw materials, but it is difficult to fill the gap in refined copper: Under Trump's tariff policy, high costs continue to inhibit China's willingness to purchase recycled copper raw materials from the U.S.; from January to October 2025, China imported 137,000 tons of recycled copper from the U.S., a sharp decrease of 62% compared to the previous year, but imports have been redirected to China from countries like Japan (accumulated +59,000 tons) and Thailand (accumulated +117,000 tons). With the expectation of tight global copper supply, competition for recycled copper raw materials will also intensify. At the domestic level, uncertainties in policies such as Document No. 783 and Document No. 770 have caused enterprises that originally relied on policy incentives to acquire low-cost recycled copper raw materials to cut production or stop operations, leading to a shortage of anode boards and making it difficult for recycled copper to fill the gap in refined copper. Positive macroeconomic expectations, marginal liquidity easing, energy transition, and AI infrastructure providing incremental copper demand: From the demand side, the growth rate of domestic electrolytic copper consumption in 2025 has been good, and with the expectation of economic recovery in China, it is expected that domestic copper demand will remain stable in the future. As the China-U.S. trade tensions ease and the U.S. Federal Reserve continues to loosen policies, the return of manufacturing industries, reindustrialization, and the development of new energy sources and AI electricity demand in developed countries overseas will lead to a resurgence in overseas copper demand. In addition, there is a warming expectation for a rate cut by the U.S. Federal Reserve in December, and it is highly probable that Hassett, a member of Trump's camp, will be elected as the new Chairman of the Federal Reserve, which will increase Trump administration's control over the White House, enhancing market expectations for loose liquidity from the Federal Reserve in 2026, which will also benefit the rise in copper prices. Risk warnings: 1) Risks of domestic economic recovery falling short of expectations; 2) Risks of the Federal Reserve not lowering rates as expected; 3) Risks of a significant decline in metal prices; 4) Risks of trade tensions between China and the U.S. escalating beyond expectations.