The copper sector is shifting towards real trading, expected to see a resonance of profit upgrades and valuation repairs.

Orient released a research report stating that the trading logic of the copper sector is gradually shifting from expectation to reality. The transmission of copper scarcity to refined copper production may become a reality, and strong support from the electricity grid/AI and U.S. copper hoarding demand. In the previous market situation where expectations for the Fed rate hike were quite pessimistic, there is likely a high probability of a liquidity expectation recovery window in the future, and the copper sector is expected to see resonance in profit upgrades and valuation repairs. Orient's main points are as follows: The bank believes that the trading logic of the copper sector has gradually shifted from expectation to reality. By 2025, the supply and demand contradiction for electrolytic copper is not prominent, and copper price fluctuations mainly come from changes in expectations. However, after the drop in March 2026, copper prices rebounded quickly to high levels, but copper stocks remained at low levels. During this process, it was mainly the valuation side that was suppressed (rather than company profits). From the most direct inventory data, despite the relatively high domestic social copper inventories at the beginning of March 2026 compared to 2022-2025, after the copper price drop in March, the speed of inventory turnover exceeded market expectations. As of July 10, domestic social copper inventories had dropped from a high of 577,200 tons to 165,000 tons, a decrease of 71%. The logic of supply and demand tension behind the rapid destocking is gradually being realized, and the trading logic of the copper sector is gradually shifting from expectation to reality. Supply side: Copper scarcity is intensifying, with the possibility of transmission to refined copper. Since the second half of 2025, global copper production has been continuously declining. As the world's largest copper-producing country, Chile's copper production in January-April 2026 decreased by about 8% year-on-year. The incremental increase in global copper production that can be statistically counted for 2026-2027 is also limited. Due to significant marginal tightening of copper concentrate raw materials and scrap copper raw materials, domestic crude copper production has shown a significant decline in recent months. In April-May 2026, China's crude copper production was 970,000 tons and 960,000 tons, year-on-year, -14%/-3%, respectively. The bank believes that the transmission of copper scarcity to the refined copper sector in the second half of the year is a probable event. Demand side: Dual drive of electricity grid & AI, support for "hoarding copper" demand In terms of the electricity grid, the investment completion amount of the national grid in January-May 2026 was 230.9 billion yuan, a year-on-year increase of 13%. Considering the previous announcement by the national grid of a 4 trillion yuan investment plan, the electricity grid investment plan is expected to support high growth in copper demand for power use. The four core modules of AI data centers all require copper as a transmission medium, and in 2025, copper used by data centers accounted for only about 2% of global copper demand. With the explosive growth in computing power demand, it is estimated that the total amount of copper used by global data centers is expected to reach 1.4 million tons by 2030, contributing to explosive demand growth. Additionally, since 2025, the effect of the U.S. market on global copper inventories has become an important support for demand, with President Trump currently in a 90-day window to sign the copper tariff executive order. Considering the U.S.'s own copper deficit, hoarding copper demand may continue in the second half of 2026. Liquidity expectations are gradually reversing, and the copper sector is expected to see dual impacts The market previously expected 2-3 interest rate hikes by the U.S. Fed in 2026-2027, which is clearly too pessimistic. Recently, the extent of interest rate hikes has been gradually revised, with inflation mainly contributed by energy components and signs of weakening in the job market. Considering that the Fed's interest rates are still at a high level since 1990, the actual room for interest rate hikes may be limited. The valuation of the copper sector is currently at a low level, and when the window of liquidity expectation restoration arrives, the bank believes that copper prices may exceed expectations, and the copper sector may see resonance in profit upgrades and valuation repairs. Risk warning Supply side release exceeds expectations, downstream demand falls short of expectations, Fed hawkishness exceeds expectations, geopolitical risks, inaccurate production statistics, and changes in assumptions affecting calculation results.