Copper's Rally: Hope for US-China Trade Talks Amid Supply Tightness

The copper market in early May 2025 oscillated between optimism and caution, driven by the interplay of geopolitical negotiations and structural supply constraints. Prices edged higher on hopes that U.S.-China trade talks could ease tariff-driven market distortions, even as physical markets tightened due to labor strikes in Chile and shifting trade flows. This article examines the forces propelling copper’s recent rebound—and the risks that could reverse it.

Trade Talks: A Fragile Catalyst

Copper’s rebound to $4.74/lb ($10,434/ton) in late April and early May was initially fueled by signals of U.S.-China detente. U.S. President Donald Trump’s remarks about a “very good chance” of a trade deal reduced fears of escalating tariffs, while China’s Commerce Ministry confirmed it was reviewing exemptions to its 125% retaliatory tariffs on U.S. goods. This optimism pushed LME copper above its 21-day moving average to $9,199/ton on May 1—a 0.8% rise—but prices remained below the critical $9,350/ton resistance level.

However, the U.S. maintained its 145% tariffs on Chinese imports, and no formal talks had begun by mid-May. Analysts warned that unresolved disputes could trigger fresh volatility. “Tariffs remain a Sword of Damocles,” said a Singapore-based trader, noting that the COMEX premium to LME copper had spiked to a record $1,443/ton as U.S. buyers scrambled to secure supplies amid import uncertainty.

Supply Tightness: A Physical Market Squeeze

While trade tensions dominated headlines, physical markets tightened quietly. LME warehouse stocks fell to 108,725 tons—the lowest since 2023—while Asian inventories hit a one-year low of 42,025 tons. Shanghai’s copper market showed steep backwardation, with prompt-month contracts trading at a $150/ton premium over three-month futures. This reflected acute near-term shortages, driven by:
- Chilean disruptions: Output fell 7% year-on-year in early 2025 due to labor strikes and technical issues.
- Congo’s rise: China now sources more refined copper from Congo than Chile, highlighting regional supply shifts.
- Yangshan premium spikes: China’s April import demand indicator hit $94/ton—the highest since late 2023—as buyers restocked ahead of the May Day holiday.

These trends underscored the fragility of global supply chains, with LME cash premiums rising to $30/ton—a 21% increase from the prior week—and European energy constraints further complicating production.

Technical and Fundamental Crossroads

Technically, copper faces pivotal levels: a break above $5.00/lb ($11,200/ton) would signal a new bullish phase, while a drop below April’s $4.03/lb low could indicate deeper economic malaise. Analysts at Goldman Sachs remain bullish, forecasting $10,000–$11,000/ton by 2027 due to rising demand from EVs and renewables. The International Copper Study Group (ICSG) projects a 2.3% rise in global mine output in 2025, but CRU Group warns of a 1.2 million-ton deficit by 2026 as demand outpaces supply.

The Risks Ahead

Despite optimism, risks loom large. U.S. manufacturing contracted in April, and the first-quarter GDP shrinkage—driven partly by tariff-induced import surges—raised recession fears. A prolonged trade stalemate could further distort trade flows, while a slowdown in China’s infrastructure spending could dampen demand.

Conclusion: Copper’s Dual Role as Barometer and Battleground

Copper’s early May rally reflects its dual role as both an economic barometer and a geopolitical battleground. Near-term prices remain tied to U.S.-China trade progress and physical supply tightness, with the $9,100–$9,500/ton range acting as a short-term equilibrium. Long-term, the metal’s outlook is bullish: EVs require 83 kg of copper per vehicle (versus 23 kg for conventional cars), and the ICSG estimates that 4.3% annual electricity demand growth (driven by digitization) will sustain demand growth.

Investors should monitor two key metrics: the COMEX-LME premium spread—a barometer of tariff-driven distortions—and China’s copper restocking patterns. If trade talks bear fruit and supply constraints ease, copper could reclaim $10,000/ton by year-end. But with global inventories at multiyear lows and geopolitical risks elevated, the path ahead remains rocky. As one analyst put it: “Copper is pricing in hope, but the market’s nerves are still raw.”

In this environment, a cautious, long-term approach—buoyed by structural demand trends—may prove more rewarding than chasing short-term swings.