Copper's Price Whipsaw: Decoding the Investor Return from a Weakening Fundamentals

The recent story of copper is one of extreme volatility. Just a week ago, the metal hit a record high of $14,527.50 per tonne on the LME. That level was short-lived, however. By the time trading reopened the next day, the price had fallen sharply to $13,720.50, and it has continued to retreat. By February 4, the three-month LME contract had settled at $6 per pound, a drop of about 1% from the previous session.

This dramatic move was fueled by a specific, aggressive buying pattern. The rally on January 29 originated in China, where prices on the Shanghai Futures Exchange pushed up aggressively prior to the LME opening. This buying spree was driven by Chinese fabricators returning to the market to replenish stocks ahead of the Lunar New Year holiday, which begins on February 16. At the same time, broader commodity sentiment was frenzied, as investors piled into metals amid doubts about the US dollar and a shift away from currencies and sovereign bonds. This created a powerful, if temporary, tailwind for copper and other industrial metals.

The core question for investors is whether this was a speculative return to commodities or a signal of sustainable demand. The evidence points to a speculative surge. The record price increase on January 29 was almost a 12% daily move, the largest single-day rise since 2008, yet there was no definitive fundamental rationale behind the spike. Some attributed it to the "debasement trade," where money flows into hard assets like copper as a hedge against a weakening dollar, with huge asset management and macro funds, mainly in China, reportedly piling in. The price then reversed as tech stocks fell and rising inventories at major trading hubs signaled soft physical demand and ample supply. The metal also decoupled from gold and silver, which climbed on safe-haven demand, highlighting copper's distinct, speculative-driven move.

The bottom line is that the recent price action looks more like a speculative whipsaw than a fundamental re-rating. The rally was a sharp, short-term squeeze fueled by positioning and seasonal stock-building, while the subsequent fall reflects a return to more sober assessments of supply and demand fundamentals. For investors, this volatility underscores the importance of separating the noise of speculative flows from the underlying balance of copper production and consumption.

The Weakening Supply-Demand Balance

The recent price weakness is a direct signal from the physical market. Rising inventories at major hubs in Shanghai, London, and New York indicate that supply is currently outpacing immediate demand. This is the clearest evidence of soft physical conditions, a shift from the tightness that fueled the recent rally. The data shows a tangible disconnect between the speculative frenzy and the real-world flow of metal.

This inventory build is a key part of the story. It follows a period of aggressive buying, particularly from Chinese fabricators stockpiling ahead of the Lunar New Year. Now, with that seasonal replenishment complete and broader market sentiment shifting, the metal is finding its way back into storage. This flow is a short-term inventory cycle, but it underscores a fundamental imbalance: the structural demand story is not translating into sustained consumption at current price levels.

The core of the problem lies in a forecasted global surplus. Goldman Sachs Research has raised its 2026 global copper surplus forecast to 300 kilotons from 160 kilotons, citing a significant pullback in Chinese refined copper consumption. This revision highlights a critical pressure point. Despite tight mine supply and constrained growth in key producers, the rising demand from electrification and AI data centers is not being met. The scarcity of new mining projects is a long-term structural constraint, but it is being overwhelmed by a sudden drop in demand from one of the world's largest markets.

The bottom line is a tension between short-term inventory flows and longer-term fundamentals. The inventory build signals soft demand now, but the underlying drivers for copper-energy transition and digital infrastructure-remain intact. The current weakness may be a tactical pause, but it is a pause driven by a real-world supply-demand mismatch that Goldman's revised surplus forecast quantifies. For the price to stabilize, physical demand needs to reassert itself, or the surplus must be absorbed.

The Forward-Looking Catalysts and Risks

The path for copper prices hinges on a few key catalysts and risks that will determine if the current weakness is a temporary dip or the start of a longer correction. The primary near-term event is clarity on US refined copper tariffs. According to Goldman Sachs Research, a 15% tariff is expected to be announced in mid-2026. This announcement is seen as a critical catalyst that could initially support prices by triggering a final wave of import stockpiling ahead of implementation. However, the research team also warns that any delay in the announcement or its implementation could dramatically impact the direction of prices this year, as uncertainty itself is a major headwind.

Once the tariff decision is made, the market is likely to refocus on the large global surplus. Goldman's base case is that prices will decline to $11,000 per tonne by the end of 2026, following the initial tariff-driven support. This sets up a potential two-phase move: a temporary rally on the tariff news, followed by renewed pressure as the market absorbs the reality of a 300-kiloton surplus. The timing of this correction will depend heavily on the pace of the tariff announcement and the speed with which the stockpiling demand cycle plays out.

A key potential stabilizer is the price itself. Lower levels should draw physical buyers back into the market, helping to absorb the surplus and stabilize demand. As ING strategist Ewa Manthey noted, lower prices should now draw physical buyers back into the market, helping to stabilise demand. This is a classic market mechanism where reduced cost can reignite industrial consumption that was sidelined by the recent speculative surge. The effectiveness of this stabilizing force, however, depends on the correction being gradual enough to allow for orderly restocking rather than a chaotic, panic-driven sell-off.

The biggest risk to a smooth recovery is the legacy of recent volatility and high speculative positioning. The market has shown it can experience sharp, sentiment-driven moves, as seen in the 15% plunge from a record high hit last Thursday. If the tariff announcement is delayed or if global demand data disappoints, this could reignite volatility and lead to further sharp corrections. The recent price action has already demonstrated how quickly sentiment can shift, and the market remains vulnerable to macroeconomic fears or a broader selloff in risk assets. For now, the setup is one of tactical uncertainty, where the tariff catalyst is the next major event, but the path to stability depends on managing both the physical surplus and the psychological scars of the recent whipsaw.