Copper's Volatility Amid China Demand Uncertainty: Navigating Near-Term Risks and Long-Term Stimulus Potential

The global copper market finds itself at a crossroads. As of May 16, 2025, LME copper futures hover near $9,536 per ton, just above the critical $9,500 threshold that could trigger a "buy-the-dip" strategy. Yet, this price stability masks a stark divergence in supply and demand dynamics: rising Chinese inventories, weak export data, and geopolitical trade tensions weigh on near-term prospects, while the potential for Beijing’s infrastructure stimulus and a resolution to U.S.-China trade disputes could ignite a rebound. For investors, the path forward demands a tactical balance between opportunism and caution.

The Copper Crossroads: Oversupply and Hope

Copper’s volatility stems from conflicting signals. On one hand, Chinese copper imports surged in late April as buyers stockpiled ahead of potential tariffs, pushing SHFE inventories up 34% week-on-week to 108,142 tons—a 6-month high. This build-up, driven by speculative buying and weak domestic demand, has created near-term oversupply. Meanwhile, LME stocks have plummeted to a one-year low of 179,375 tons, as shipments to the U.S. (driven by tariff-related arbitrage) flooded COMEX warehouses, pushing their inventories to an eight-year high of 168,563 tons.

The result is a $600/ton premium for U.S. copper over LME benchmarks—a gap narrowing from its March peak of $1,600—as traders front-run tariff risks. Yet, the market remains fragile. Analysts warn that the 90-day U.S.-China tariff truce, which temporarily paused retaliatory measures, has done little to resolve structural uncertainties.

Inventory Dynamics: A Tale of Two Markets

The surge in SHFE inventories signals a demand slowdown in China, where buyers have retreated from high-priced contracts. However, these stocks—though elevated—remain far below the 2023 peak of 268,337 tons, suggesting no catastrophic oversupply. Meanwhile, LME’s inventory decline reflects global supply chain reshaping: copper is flowing to the U.S. to avoid potential tariffs, leaving LME warehouses dominated by less desirable Russian and Chinese brands.

The Yangshan Copper Premium, a key gauge of Chinese import demand, has stabilized at $100/ton since March—a sign that buyers are no longer panicking—but remains below 2023 highs, underscoring weak fundamentals.

Demand Signals: China’s Dilemma

China’s copper consumption, the world’s largest, faces headwinds. Weak March-April export data (-20% QoQ in refined copper imports) and slowing construction activity have dampened demand. Yet, a critical wildcard remains: Beijing’s stimulus plans. If the government accelerates green energy projects, EV charging networks, and urban renewal programs—key planks of its 14th Five-Year Plan—copper demand could rebound sharply.

The Copper ETF (CPER), which tracks COMEX futures, rose 20% from $25.65 to $30.79 in late April 2025 on optimism about China’s infrastructure push. However, this rally faded as trade tensions resurfaced, underscoring the market’s dependence on policy clarity.

Policy Levers: The Catalyst for a Rebound

The path to recovery hinges on two catalysts:
1. U.S.-China Trade Resolution: A final Section 232 tariff decision (expected by summer 2025) could stabilize regional price disparities. If tariffs are imposed, U.S. stockpiles may slowly drain, alleviating oversupply pressures.
2. Beijing’s Stimulus Activation: A $300 billion infrastructure package, rumored to be in the works, could boost copper consumption by 150,000 tons annually—equivalent to 2% of global demand.

The Investment Case: Buy-the-Dip, But Proceed with Caution

Act if…
- Prices drop below $9,500/ton (current: $9,536), signaling an overreaction to near-term oversupply.
- SHFE inventories begin to decline, a sign of stronger demand or reduced imports.
- The U.S.-China tariff truce is extended or replaced with a binding agreement.

Avoid…
- Overexposure until LME-CME price gaps narrow (to ~25% of LME prices if tariffs are imposed) or trade uncertainties resolve.
- Ignoring geopolitical risks: U.S. sanctions on Russian copper or further trade disputes could disrupt flows.

Conclusion: A Volatile Dance Between Risk and Reward

Copper remains a high-beta play on global growth and trade policy. While near-term risks—weak Chinese demand, regional inventory imbalances—argue for patience, the $9,500/ton level represents a compelling entry point for investors willing to bet on Beijing’s stimulus and U.S.-China trade normalization.

The mantra for now: Buy the dip, but don’t chase the rally until the dust settles.