CITIC SEC: "Tariff trading" and inventory hoarding return to the main line of the copper market, focusing on recommending opportunities for copper plate configuration.

CITIC SEC released a research report stating that the final timing for the assessment of U.S. copper tariffs is nearing, with the focus returning to the copper market on "tariff trading" and inventory hoarding. The bank believes that overseas "inventory hoarding" provides solid support for the copper fundamentals, while the "trading" inventory hoarding reflected by the recent accelerated increase in COMEX inventories is expected to intensify the strength of copper prices and copper sector, with the potential to hit a high point of $15,000 per ton within the year. The bank highlights the opportunity to allocate to the copper sector with both profit elasticity and valuation elasticity resonance. Key points from CITIC SEC are as follows: "Tariuf trading" and the resurgence of U.S. copper inventory hoarding reignite market sentiment. On June 1, 2026, LME copper and COMEX copper daily gains reached 2.0% and 2.8%, closing at $13,897 per ton and $14,485 per ton respectively. According to the media, the U.S. Department of Commerce needs to submit a latest copper market assessment report to President Trump by June 30, and provide recommendations on whether the U.S. should impose import tariffs on refined copper. The tariff scheme implemented by the U.S. from August 1, 2025 did not impose fees on refined copper, with plans to gradually impose tariffs starting from 2027, with an initial rate of 15%. Trump subsequently requested the U.S. Department of Commerce to continue monitoring the copper market and submit another assessment report by June 30, 2026. As the timing for the copper tariff assessment approaches, the hoarding behavior triggered by "tariff trading" reignites market sentiment in the copper market. The explicit display of demand for "trading" inventory hoarding is expected to energize the copper sector. The U.S. refined copper demand has long maintained a 40-50% import dependence, with supply gaps and tariff expectations leading to a premium for COMEX copper compared to LME copper. During the window period before the tariff implementation, international traders, stimulated by cross-market arbitrage opportunities, transport refined copper from outside the U.S. to the U.S. warehouses to earn price differentials. In February 2025, Trump threatened to impose tariffs on imported refined copper in the U.S., leading to a cumulative increase of 405,000 short tons in COMEX inventories in 2025. The COMEX-LME basis has generally shown positive differentials, with an annual average of $675 per ton, reaching temporary highs of $1,600 per ton in March 2025 and $3,000 per ton in July 2025. The bank believes that as the timing for the copper tariff assessment approaches, the explicit display of demand for "trading" inventory hoarding may drive the copper sector to strengthen: 1) On January 14, 2026, Trump postponed imposing 232 tariffs on key minerals, reducing market expectations for copper tariffs. Combined with the impact of the U.S.-Iran conflict on market order, the COMEX-LME basis largely returned to parity, with an average spread of -$24 per ton from January to April 2026. Since May 2026, as the timing for the copper tariff assessment approaches, the COMEX-LME basis has widened again, reaching nearly $600 per ton as of June 1, 2026. COMEX copper inventories have also accumulated again, reaching a historical high of 642,000 short tons as of June 1, 2026. The widening spread from tariff trading or accelerating COMEX inventory hoarding. 2) Compared to the hidden inventory hoarding downstream, COMEX copper inventories have explicit features and stronger market guidance. According to the bank's review, since 2025, COMEX inventories have experienced three rounds of acceleration, from April to August 2025, from September to October 2025, and from November 2025 to January 2026, all accompanied by rising copper prices and copper sector uptrends. With the acceleration of COMEX inventory hoarding again, combined with the dampening of macro sentiment related to war, the bank believes that the trend is likely to gradually spread to LME copper prices and the copper sector. The demand for "inventory hoarding" provides solid support for the copper fundamentals. The fundamental factors of "tariff trading" and the U.S. copper inventory hoarding lie in the development of AI and the reshoring of manufacturing, which have generated significant long-term demand for copper, combined with the enhanced supply chain control of key metals by various countries, leading to an unprecedented demand for stockpiling of reservoirs downstream from overseas. According to the USITC (U.S. International Trade Commission), since March 2025, the central import volume of refined copper in the United States has significantly increased, with monthly import volumes rising from an average of 66,000 tons from 2020 to 2024 to 158,000 tons from March 2025 to March 2026. Compared to the approximately 500,000 tons increase in COMEX copper inventories since March 2025, the increase in import volume shown by U.S. Customs data is seen by the bank as reflecting more hidden inventory hoarding flowing downstream. A typical example is that despite the COMEX-LME spread being largely erased from January to April 2026, the monthly average import volume of refined copper in the U.S. remained above 170,000 tons from January to March 2026, indicating that the demand for "inventory hoarding" has stronger sustainability compared to the demand for "trading." The bank argues that during the March U.S.-Iran conflict, copper prices seeking strong support at around $12,000 per ton, it is difficult to refute the factor of inventory hoarding on the demand side. In addition, considering the current stockpiling level of over one million tons, the bank believes that the trend of copper as a strategic metal being continually strengthened, as well as the trend of AI development and its impact on the growth of copper demand (the bank estimates that the consumption density of copper by AIDC is about 30,000 tons/GW). The warming up of "tariff trading" is expected to promote copper prices to return to new highs, with a focus on recommending opportunities for the copper sector allocation. As of the close of June 1, 2026, the CITIC Copper Index has fallen by 3.1% since the beginning of the year, underperforming copper prices by 13.7 ppts, and underperforming the SSE 300 Index by 1.8 ppts. Unlike the weakening profit expectations, the compression on the valuation side is more pronounced. As of the close of June 1, 2026, the bank estimates that the P/E ratio of the copper sector in 2026 (based on a copper price assumption of $13,000 per ton) is only 9.8 times, breaking through the historical extreme value level of 10 times. The bank believes that based on a solid supply-demand logic and foreseeable low domestic inventory levels, coupled with the heating up of the U.S. copper "tariff trading" and macro suppression, copper prices are expected to hit a high in the short term; with the easing of macro pressures, as well as the realization of fundamental expectations factors such as extreme weather, explosive growth in demand for electrical network equipment and AI, copper prices are expected to hit $15,000 per ton. Based on the combination of profit elasticity and valuation elasticity, the current cost-effectiveness of the copper sector allocation is becoming more prominent. Risk factors: The risk of a significant drop in copper prices; the timing, method, or extent of the imposition of U.S. copper tariffs is less than expected; downstream demand falls short of expectations; risks of continued price increases in sulfuric acid, diesel, etc., leading to unexpected supply shortages or significant cost increases; risks of liquidity shocks triggered by escalated conflicts in the Middle East; supply risks brought about by extreme weather; operational risks for Chinese companies' overseas copper mines.