CITIC SEC: Seizing the opportunity of valuation recovery under the expectation and improvement of sentiment for price increase in the copper industry.

CITIC SEC released a research report stating that multiple positive factors are driving copper prices to once again exceed $14,000. Subsequent factors such as declining inventories and supply disruptions will continue to fuel the price increase. Most potential paths for tariffs still favor copper, and under neutral assumptions, the price of copper is expected to surpass $15,000 within the year. The report highlights investment opportunities in the copper sector benefiting from valuation elasticity and profit potential resonance. Key points from CITIC SEC include: Multiple positive factors driving copper prices to surpass $14,000/ton. As of July 21, 2026, LME copper prices rebounded and approached $14,000/ton, showing a cumulative 7% increase from the bottom of $13,000/ton in late June. Despite the traditional domestic demand off-season (SMM predicts a decrease in apparent domestic consumption growth from 4.4% in January-June to 1.0% in July) and expectations of a high Fed rate hike (CME FedWatch currently pricing in a 25BPS increase), copper prices have strengthened. The core factors include: 1) Expectations of tight spot market due to low domestic inventories; 2) Extreme weather disturbances in the copper supply; 3) Speculation on import tariffs on refined copper in the US. The first two factors are expected to strengthen in the next quarter with high certainty, and although there is disagreement on the third factor, it is likely to evolve into a neutral or positive scenario. Based on this, the central price of copper is expected to continue to rise, and under a neutral assumption, LME copper prices are likely to exceed $15,000/ton within the year. Supply-demand mismatch expected to strengthen the low inventory effect and provide a solid trading foundation for copper prices. According to SMM, as of July 20, 2026, domestic copper inventories were at 144,000 tons, with over 500,000 tons depleted since the peak in March (with over 100,000 tons depleted since July). The current inventory level is the lowest since the same period in 2021, accompanied by an increase in domestic spot premiums over the past week. According to SMM, apparent consumption of refined copper in China from January to June grew by 4.4%, but actual supply (domestic production + net imports) only grew by 2.8%. The supply-demand mismatch is reflected in the unexpectedly high depletion of inventories. SMM predicts a 0.6% decrease in apparent consumption of refined copper in China in July-August under the off-season effect, but due to smelting maintenance, raw material shortages, and insufficient imports, actual supply is expected to decrease by 3.5%. The intensified supply-demand mismatch may further reduce domestic inventories, providing stronger spot support for copper prices and more elastic trading opportunities under potential positive factors. Extreme weather and potential production guidance revisions may exacerbate supply concerns. According to SMM, adverse weather conditions in Chile, the world's largest copper mining country, have affected some large copper mines, limiting port ship movements. Several mining companies, including Codelco, Antofagasta, and Anglo American, have initiated safety emergency plans and made adjustments to their operations. Historically, periods of high deviation of the El Nio index (high during El Nio events) are usually accompanied by a decline in copper production in Chile. According to NOAA's forecast, the probability of a strong El Nio event occurring in the second half of 2026 is close to 100%, with the average probability of a strong El Nio event occurring in September-November reaching 25%. In addition, based on data for the first quarter of 2026, several global top copper mining companies have achieved less than 23% of their production targets for the first quarter, with Codelco and Freeport's production completion rates 3-5 ppts lower than the average for the same period in 2023-2025, indicating a high probability of subsequent downward revisions in copper production guidance. As global copper mining companies continue to disclose data for the second quarter of 2026, potential revisions in production guidance could exacerbate supply concerns. Awaiting the decision on US copper tariffs, most paths still favor copper. According to Bloomberg, the US Department of Commerce submitted a market assessment report to President Trump on the copper market before the end of June, and decisions on tariffs on refined copper imports are currently pending. The explicit accumulation of "trading" inventory (COMEX accumulation) helps to intensify the copper sector market, while the accumulation of "stockpile" inventory (hidden accumulation) provides a solid support for the fundamental aspects of copper. Based on the above conclusions, most expected paths for tariffs are still expected to favor copper: 1) If the highest expected scenario (phased tariff imposition from 2027 onwards) is ultimately implemented, the second half of 2026 (considering the transportation cycle, especially in the third quarter of 2026) will become a potential window for overseas inventory accumulation, leading to high-intensity and high-speed inventory demand in both "trading" and "stockpile" aspects, benefiting the upward resilience of copper in both trading and fundamental aspects. 2) If, as in late July 2025, the tariff decision is further delayed again, short-term inventory accumulation demand will weaken, but the time window will be extended, with subsequent "trading" demand being amplified at key time points, and "stockpile" demand becoming smoother but more sustainable, providing mid-term support for copper price stability. 3) If the lower-than-expected scenario is implemented, the tariffs, if implemented immediately, will weaken the magnitude of future inventory accumulation, but the probability of existing inventory outflow is low, while the complete cancellation of tariffs may pose a risk of inventory outflow concentration (mainly in COMEX). Valuation repair for the copper sector is still in its early stages, highlighting the investment opportunities in the copper sector. Although the PE valuations of the domestic copper sector have modestly recovered from the emotional freeze point of 9-10 times, as of the close of July 22, 2026, the forecasted PE ratios for the sector in 2026 (based on copper price assumptions of $13,000 and $14,000 respectively) are only 10.9 times and 10.2 times, still at historically low levels. According to the review, the PE valuation level of the domestic copper sector has a strong positive correlation with the expected rise in copper prices in the next 1-2 quarters, but to reach the freezing point valuation (10 times or lower), a combination of 'lack of price rise expectations' and 'market sentiment pessimism' is required. It is believed that both of these aspects are currently experiencing positive marginal shifts, therefore, there is still sufficient room for the valuation of the copper sector to repair, and the improvement in price expectations (i.e., profit expectations) will further expand the upside potential of stock prices. Risk factors: Significant decrease in copper prices; US copper tariff imposition timing, method, or amount falling short of expectations; downstream demand lower than expected; risks of continuous price increases in sulfuric acid, diesel, etc., leading to supply shortfall or significant cost increase; liquidity shock risks triggered by escalations in US-Iran conflicts, extreme weather supply risks; operational risks of Chinese companies operating overseas copper mines.