US-China Trade Truce Sparks Copper Rally: Navigating Near-Term Gains and Zinc's Oversupply Dilemma

The global commodities market is at a crossroads. As US-China trade talks in London inch toward a fragile truce, copper—a bellwether of industrial health—finds itself in a precarious yet promising position. Meanwhile, zinc grapples with oversupply risks that could derail gains. Here's how investors should position themselves.

Copper's Geopolitical Lifeline: Trade Talks and Technical Support

The recent talks between US Treasury Secretary Scott Bessent and China's Vice Premier He Lifeng have injected cautious optimism into markets. A temporary tariff truce, which slashed US tariffs on Chinese goods to 30% from 145%, has already stabilized copper prices at $9,719/ton on the LME—near their March highs. This reflects three critical dynamics:
1. Inventory Tightness: LME copper stocks have plummeted to below 122,400 tons, a 50% drop from February 2025.
2. Demand Resilience: Despite Chinese imports falling 16.9% annually in May, stimulus measures and EV demand (83 lbs/copper per vehicle) ensure long-term structural support.
3. Premium Compression: The US premium over LME prices—once as high as $756/ton—has narrowed as trade tensions ease, reducing regional price disparities.

Investment Thesis: Copper futures (symbol: HG) are primed for a breakout above $4.70/lb ($10,400/ton) if the July 9 trade deadline passes without escalation. Key technical levels to watch:
- Resistance: $4.70/lb (psychological threshold for institutional buyers).
- Support: $4.50/lb (200-day moving average).

A long position in COMEX copper futures becomes compelling as the London talks advance. The metal's role in green energy transitions (renewables require 10x more copper than fossil fuels) adds a bullish macroeconomic tailwind.

Zinc's Oversupply Dilemma: A Cautionary Tale

While copper thrives on trade optimism, zinc faces a supply glut. Global zinc concentrate production rose 2.6% YoY in Q1 2025, with Africa (DRC's Kipushi mine) and Russia (Ozernoye) driving output. The supply-demand imbalance is stark:
- Surplus Forecast: The ILZSG projects a 2025 surplus of 93,000 tons, with prices hovering near $2,500/ton.
- Regional Weakness: Chinese zinc imports surged 14% MoM in April, yet spot premiums in Shanghai collapsed to $45/ton—a 62% drop from January.

Investment Risk: Zinc (symbol: ZN) lacks copper's macroeconomic tailwinds. Short-term traders should avoid overexposure until the supply glut eases. Key red flags:
- Economic Sensitivity: Zinc's 51% demand share in construction makes it vulnerable to global slowdowns.
- Environmental Hurdles: Projects like Indonesia's Dairi mine face local opposition, delaying new supply.

Strategic Play: Long Copper, Short Zinc

The optimal strategy is to capitalize on copper's geopolitical stabilization while hedging against zinc's oversupply.

1. Copper Longs:
2. Entry Point: $4.50/lb (200-day MA).
3. Target: $5.20/lb (March 2025 high).

4. Stop Loss: Below $4.30/lb (April lows).

5. Zinc Shorts:

6. Entry Point: $2,600/ton.
7. Target: $2,300/ton (2024 lows).
8. Stop Loss: Above $2,800/ton.

Risks and Considerations

• Trade Deadlines: Failure to resolve rare earth and tech disputes by July could send copper below $4.00/lb.
• Macro Volatility: A US recession (UBS forecasts 35% probability) would hit both metals, but copper's green economy linkages provide a cushion.

Final Take

The path to copper's $5.20/lb ceiling hinges on three pillars: a July trade deal, Chinese inventory rebuilding, and sustained EV demand. Zinc, meanwhile, remains a victim of its own oversupply until new demand materializes. Investors seeking stability should lean into copper's technical and geopolitical tailwinds—while keeping zinc sidelined until fundamentals rebalance.

Trade with conviction, but stay vigilant.