Copper Rises to Record High as Citi, Mercuria Signal Supply Crunch Looming

Copper prices surged to an all-time high of $11,581.50 per ton on Wednesday, driven by a bullish outlook from Citigroup Inc. and growing concerns over a potential supply-demand imbalance. The metal's rally was further supported by record withdrawals from London Metal Exchange (LME) warehouses, signaling a tightening physical market. Traders are closely watching the situation as the U.S. looms large as a potential destination for copper amid looming import tariff fears.

Citi analysts forecast that copper will average $13,000 in the second quarter of next year, with a structural deficit expected to emerge by 2026 due to robust demand and constrained supply. The firm cited a "constructive fundamental and macro backdrop" as key drivers, reinforcing its bullish stance on the metal.

Meanwhile, Mercuria Energy Group Ltd. has taken a significant step by ordering a $500 million withdrawal of copper from LME warehouses, the largest cancellation in over a decade. This move highlights the anticipation of a global supply crunch as traders prepare for the shifting dynamics caused by U.S. import policies and rising demand for copper in the transition to renewable energy and electrification according to Bloomberg.

Market Fundamentals and Structural Deficit

The copper market is facing a structural deficit that is expected to widen over the next decade. BloombergNEF reported that the shortfall will be driven by robust demand from infrastructure and renewable energy projects, which require massive amounts of copper for grid upgrades and electric vehicles. At the same time, supply remains constrained due to declining ore grades, operational disruptions at key mines, and a lack of new projects coming online.

Citi analysts emphasized that copper's upside potential is supported by multiple catalysts, including an incrementally constructive fundamental and macroeconomic environment. The firm's forecast contrasts with more conservative views from Macquarie Group and Goldman Sachs, which argue that current price levels may not be sustainable due to global inventories remaining relatively high. Macquarie highlighted that the global market is not physically tight, suggesting that volatility will persist but prices above $11,000 per ton may face headwinds.

Tariffs and Trade Flows

The potential for U.S. import tariffs has significantly impacted copper flows, with traders accelerating shipments to American ports in anticipation of policy changes. Citigroup and BloombergNEF both highlighted the risk of a global supply squeeze as the U.S. absorbs a growing share of the world's copper supply. This shift has created a situation where U.S. inventories have surged while other regions face tighter availability.

According to Goldman Sachs analysts, the global market is expected to remain in a surplus this year, but the surplus is concentrated in the U.S., where prices are surging due to Comex futures contracts trading at a premium. This divergence has led to a sharp reacceleration of copper flows into the U.S.

Investor and Producer Reactions

The surge in copper prices has led to a rally in mining stocks, with Chilean producer Antofagasta Plc reaching a record high. Producers are also charging record premiums for supplying copper to customers in Europe and Asia, as buyers are effectively compensating for the potential profits that could be made by selling into the U.S. market. This pricing dynamic is expected to persist as long as the threat of tariffs remains.

In response to the tightening market, Rio Tinto has upgraded its copper output guidance for 2026, signaling confidence in its production capabilities. The company has also reduced capital expenditure guidance for 2025 and beyond, reflecting a more disciplined approach to capital allocation as it completes major projects according to Investing.com.

Risks and Uncertainties

Despite the bullish outlook, several risks remain. Goldman Sachs and Macquarie both caution that the global market is not yet physically tight, and prices above $11,000 per ton may face downward pressure if demand growth slows unexpectedly. China, the world's largest consumer of copper, has seen a "material slowdown" in demand, which could impact the market's trajectory.

Additionally, mine outages and operational disruptions in key producing countries such as Chile and Indonesia have created further uncertainty. Ivanhoe Mines and Glencore have both revised their production guidance downward, citing challenges such as flooding and declining ore grades. These developments underscore the fragility of the global copper supply chain.

As the market braces for potential tariffs and a looming structural deficit, investors and analysts will closely monitor the evolution of copper flows, policy developments, and production trends. The coming months will be critical in determining whether the current bullish momentum can be sustained or if the market will face a period of consolidation and volatility.