Copper Faces Short-Term Headwinds Despite Strong Demand

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Price Rally Stalls as Inventories Climb

Copper prices climbed to a record level of more than $13,000 per ton last month, but have since pulled back to roughly $12,700 this week. The reversal has occurred as strong expectations for long-term demand have run into a wall of heavy stockpiles at major exchange hubs in the U.S. and China.

The outlook for structurally higher copper consumption remains intact, supported by themes such as electrification and accelerating power needs. However, in the short term, copper appears more vulnerable than gold, where the rally has been more resilient.

“While we expect long-term gold prices to rise further, we see more differentiated returns across the broader commodity space in the base case,” analysts at Goldman Sachs wrote in a recent note carried by the South China Morning Post.

Signals of Oversupply and Capped Near-Term Upside

Analysts indicate that the immediate backdrop for copper is characterized by oversupply, which has limited the sustainability of the recent surge in prices. Rising visible stocks, particularly on exchanges, are reinforcing the impression of ample availability in the near term.

“Rising visible inventories, softer pre-holiday demand in China, and a cash-to-three-month contango in London signal ample near-term supply, offsetting copper’s appeal as a long-term investment theme driven by electrification, AI data centre power demand, electric vehicles, and cooling infrastructure,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in an analysis last week.

“While the longer-term narrative remains supportive, near-term upside may stay capped until post-holiday demand signals re-emerge.”

Chinese Holiday Lull and Speculative Positioning

Chinese markets have been shut for more than a week up to February 23 for the Lunar New Year holiday. Around this period, demand typically softens, and domestic metals exchanges have less ability to sway global pricing compared with the preceding weeks.

At the end of 2025 and the start of 2026, speculators held record-high open interest across base metals – including copper, zinc, nickel, tin, lead, and aluminum – on the Shanghai Futures Exchange. Traders have committed unprecedented amounts of capital to China’s metals markets in anticipation of ongoing gains in base metals and lithium prices. A sizable portion of these long positions has been driven by retail investors, with the speculative fervor spilling into global markets.

Analysts note that although supply-demand fundamentals remain important, extreme positioning and momentum trading have become major forces, fueling rapid run-ups to record highs followed by sharp corrections.

China’s Growing Role in Metals Price Formation

China has increasingly become the primary venue where short-term pricing in metals is determined, according to ING commodities strategist Ewa Manthey.

“Fundamentals still matter but this shift means that positioning and momentum play a bigger role, leading to more volatility,” the strategist added.

Other Drivers: Supply Disruptions, Tariff Risks, and AI Demand

Deutsche Bank Research points to several additional factors that have contributed to copper’s recent upswing, including supply disruptions, concerns over potential U.S. tariffs, demand associated with infrastructure and hardware for AI, and broader investment flows into the metal.

“The threat of US tariffs on refined copper is expected to lead to continued metals flows to the US, but copper demand in China has slowed sharply since Q3 2025, with high prices acting as a headwind to short-term domestic demand,” Deutsche Bank analysts noted.

Deutsche Bank expects average copper prices of $12,125 per metric ton for 2026, with a projected peak of $13,000 per ton in the second quarter, a period when Chinese demand after the holidays is likely to recover.

Forecasts and Inventory Overhang

High inventory levels at key hubs are currently exerting downward pressure on prices and are likely to continue doing so until stockpiles start to decline. As a result, analysts argue that a strong near-term bullish case for copper is lacking.

Copper’s notable pullback since the record set in January “is being driven primarily by long liquidation amid a sustained build in exchange-monitored stockpiles, which have now surpassed one million tons for the first time since 2003,” Saxo Bank’s Hansen said this week.

Tariff Uncertainty and Expectations of Surplus

Goldman Sachs Research stated in January that copper prices are expected to fall later in the year once there is clarity on potential U.S. tariffs on refined copper.

Goldman’s base case is that a 15% tariff will be announced in the middle of 2026 and implemented in 2027, “but any delay in either its announcement or implementation could dramatically impact the direction of copper prices this year.”

“Once the tariff uncertainty passes, investors are likely to renew their focus on a large global surplus in the metal, putting renewed pressure on prices,” Goldman Sachs noted.

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