Copper surged to its highest intraday price peak since January 2023, driven by tightening supply dynamics and growing optimism about Chinese demand. 

Copper prices surged by 1.7% to US$9484.50/t a week ago, marking a significant milestone for the metal. This follows a rally of about 15% over the past two months, fuelled by disruptions at major mines, which have compelled smelters to pay historically elevated prices for mined ore. Concurrently, Chinese copper plants, responsible for over half of the world's refined copper, are considering joint output reductions in response. Additionally, investors are increasingly optimistic about the world's second-largest economy, evidenced by growth in China’s manufacturing industry index at the end of March for the first time since September 2023. 

The copper price surged a further 2.7% to US$9,590.50/t over the week, following fresh data revealing robust Chinese imports in March. Chinese trade data published indicated a 6.9% increase in imports of refined copper in the first quarter compared to the previous year, despite ongoing expansion of domestic smelting capacity.  

Ewa Manthey, Commodities Strategist at ING Bank, stated, "Investors are now betting on China's recovery, coupled with improving global manufacturing activity. Furthermore, various microeconomic factors, such as tightening supply of copper concentrates, support this trend." 

Copper smelters have faced increasing pressure this year due to a supply shortage on copper concentrates, resulting in processing fees plummeting to unprecedented lows. The concentrates market has tightened significantly as smelters expanded capacity while mine supply was disrupted by the sudden closure of First Quantum Minerals Cobre Panama mine, removing about 400kt from the annual supply. The outlook for mined copper further tightened after Anglo American announced a reduction in output by ~200kt. Although no major production cuts have been announced yet, the pressure on smelters is expected to eventually lead to reductions in refined copper production. Recent data showed that ~8.5% of China’s smelting capacity was inactive in the first quarter, compared to 4.1% a year earlier. 

One potential dampener on prices is the growing accumulation of refined copper stocks in China, along with spot prices trading at a significant discount to futures prices. These set of circumstances typically indicate an oversupply in the market.