After breaking $10,000, how much longer can copper prices rise?

As LME copper prices surpass the $10,000 mark, Morgan Stanley believes that structural tightening may continue, but warns of any changes in tariff policies.

On March 19, Morgan Stanley published a research report stating that concerns over U.S. tariffs may continue to stimulate copper prices, with COMEX and LME copper prices rising by 26% and 13% respectively since the beginning of this year. Although tariffs have not yet been implemented and the investigation period may last up to 270 days, the market has already reacted in advance.

On February 25, Trump signed an executive order to initiate a Section 232 investigation, directing an investigation into whether copper imports and foreign copper production pose risks to the U.S. economy and national security. Subsequently, COMEX copper prices have strengthened significantly relative to other global benchmark prices, currently nearing the historical highs set in the second quarter of 2024, with COMEX copper price increases significantly outpacing LME copper price increases.

However, Morgan Stanley warns that, while the fundamentals currently provide support, including declining inventories, tightening term structures, and constrained mine supply, any changes in tariff policies could lead to a market reversal.

Supply and Demand Fundamentals Remain Solid

Morgan Stanley believes that supply-side tightening may continue.

Since the beginning of the year, global copper mine production has been reduced by about 250,000 tons, with Chile's copper production in January decreasing by 25% month-on-month, far exceeding the seasonal average decline of 13%. This is reflected in the continuous decline in refining processing fees, highlighting the tightening of the copper concentrate market. Smelters have also responded, with reports indicating that Tongling Nonferrous Metals is cutting refined copper production, while global smelting activity has seen a decline for the first time since October 2024.

In addition, speculative positions continue to increase, especially in the London market. Expectations of U.S. tariffs have led to an increase of 100,000 tons in canceled warehouse receipts (delivery orders) in the London Metal Exchange's Asian warehouses, with spot inventories having fallen back to mid-2024 levels.

This has also led to a tightening of the term price spread between the London Metal Exchange and the Shanghai Futures Exchange, which may attract investor capital inflows.

What Are the Risks of Rising Copper Prices?

Morgan Stanley believes that while copper prices may continue to rise in the short term, investors must closely monitor the progress of U.S. tariff policies. U.S. demand for copper is closely related to tariff expectations, so any changes could lead to a market reversal, especially since the U.S. may stockpile large amounts of materials it does not need In addition, Morgan Stanley pointed out that current copper stocks are generally lagging behind the rise in copper prices, which may indicate that the market has concerns about future demand due to uncertainties brought about by tariffs. It is worth noting that the current open interest is rising, especially on the London Metal Exchange.

Morgan Stanley stated that although the growth rate is not as extreme as in the second quarter of 2024, it still poses potential risks.