Copper Market In-depth Analysis: Stagflation Game Meets Weak Fundamentals, Copper Prices Face Heavy Correction Pressure at High Levels

The copper market is currently caught in an intense tug-of-war between macro geopolitical risks and weak micro fundamentals. Escalating tensions in the Middle East have fueled expectations of energy inflation, while deteriorating U.S. employment data have raised recession fears, forming a typical “stagflation” trading logic. Meanwhile, global visible copper inventories have hit multi-year highs, and peak-season demand from downstream industries has fallen short of expectations, putting copper prices under severe downward pressure at high levels. This report aims to filter out market noise and conduct a rigorous analysis of the future trend based on macro transmission mechanisms and real supply-demand contradictions.

Futures & Spot Market Review

On March 9, the most active SHFE copper 2604 contract plunged sharply in early trading before narrowing losses, and remained weak in range-bound trading in the afternoon, stabilizing above the 100,000 yuan mark. It finally closed at 100,190 yuan/ton, down 590 yuan or -0.59%, with an intraday range of 98,370–100,820 yuan/ton. Trading volume surged to 194,900 lots (an increase of 67,900 lots), and open interest rose slightly by 4,175 lots to 199,900 lots.

LME copper traded weakly in line with the domestic market. As of 16:00 Beijing time, it stood at 12,738 USD/ton, down 131 USD or -1.02%.

The spot market followed futures lower. Changjiang 1# copper spot price dropped 800 yuan to 100,450 yuan/ton, with a small premium strengthening to 60–100 yuan. Spot prices in Guangdong and Shanghai fell by 770 yuan and 800 yuan to 100,350 yuan/ton and 100,320 yuan/ton respectively. The premium/discount structure slightly recovered, showing a pattern of both futures and spot declining with mild bargain-hunting buying.

I.Macro Perspective: Geopolitical Conflicts & Weak Data Weigh on Risk Sentiment

1. Geopolitical Premium and the Shadow of Stagflation

Escalating U.S.-Israeli military actions and Iran’s threat to block the Strait of Hormuz have become the biggest macro uncertainty. As a critical global energy shipping lane, any disruption directly pushed crude oil above key resistance, sharply increasing imported inflation pressure.

This supply-side shock combined with weak demand has significantly strengthened stagflation expectations – a scenario of stagnant economic growth and high inflation. Historically, risk assets face dual pressure under stagflation: weaker corporate earnings from rising costs and shrinking demand, plus shifting real interest rates reshaping discount rates. Affected by this, Asian and A-share markets tumbled on Monday, the U.S. dollar strengthened, and non-ferrous metals came under heavy pressure.

2. Warning Sign from U.S. Nonfarm Payrolls

The latest U.S. nonfarm payrolls for February were far below expectations: employment unexpectedly fell by 92,000, and the unemployment rate rose to 4.4%. This confirms a sharp cooling in the U.S. labor market and puts the Fed in a policy dilemma:

• Maintaining high rates to curb oil-driven inflation risks accelerating recession;

• Cutting rates early to support employment may let inflation spiral out of control.

Although CME FedWatch shows a 41.5% probability of a rate cut in June, the Fed is likely to stay patient before inflation clearly eases. Rising policy uncertainty has driven capital out of risk assets like copper into safe havens, pressuring copper prices from a liquidity perspective.

II.Fundamental Analysis: Tight Concentrates, Abundant Cathodes, and Rising Inventories

1. Supply Side: Structural Mismatch Leads to Inventory Build-up

The copper market shows a clear structural contradiction: tight concentrates, abundant refined cathodes.

• Concentrate side: Tight copper concentrate supply persists. As of the week ending March 6, spot treatment charges (TC) plunged to -55.01 USD/dmt, a clear signal that mine supply cannot meet smelter demand, pushing smelters into deep losses.

• Smelter side: Despite tight feedstock, refined copper output has not collapsed due to past high-production inertia and by-product revenues (sulfuric acid, anode slime).

• Inventories: The mismatch has led to a continuous rise in global visible inventories. SHFE copper stocks rose for 12 consecutive weeks, up 8.59% weekly to 425,100 tons – a 10-year high for the period. LME copper stocks also hit a one-year high at 284,300 tons. High inventories have become a major cap on copper prices.

2. Demand Side: Weak Peak Season, Destocking Logic Fails

Traditional expectations of a strong “Golden March, Silver April” are being challenged. Spot trading is muted with intense buyer-seller bargaining. Although lower prices triggered some bargain hunting, downstream fabricators mostly focus on fulfilling long-term orders, with limited new orders.

Pre-Chinese New Year restocking overhang and high price levels continue to suppress end demand, making actual destocking much slower than expected. While holders try to support prices, weak buying power limits premium gains. If demand does not materially recover in mid-to-late March, high inventory pressure will intensify further.

III.Outlook & Strategy: High-level Range-bound Trading, Watch for Lower Bias

1. Trend Judgment

In the short term, copper prices will be dominated by macro sentiment, with fundamentals providing floor support but limited upward momentum.

• Bullish factors: Long-term tight copper concentrate supply; energy cost support from geopolitics.

• Bearish factors: Stagflation and recession fears; Fed policy uncertainty; record inventories; weak spot demand.

If Middle East tensions escalate further, oil fears will continue to depress risk sentiment. If tensions ease, the market will quickly refocus on high inventories and weak demand. Copper is expected to trade in a wide high-level range with a downward bias.

2. Price Range Forecast

Based on supply-demand balance and macro premium, the core trading range for the main SHFE copper contract is expected to be 98,000 – 103,500 yuan/ton.

• A break below the lower bound may trigger a deeper correction.

• A break above the upper bound requires extreme bullish sentiment or stronger-than-expected domestic demand.

3. Trading & Hedging Strategy

For industrial users and investors, a cautious defensive strategy is recommended:

• Hedging: Smelters and inventory holders may sell hedges on rebounds near the upper range to lock in profits and avoid inventory devaluation.

• Speculation: Avoid chasing highs amid high uncertainty. Consider range trading or selling deep out-of-the-money put options for premium income, with strict stop-losses against black-swan events.

Conclusion

The copper market is at a collision point between macro narratives and micro realities. Until geopolitical fog clears, high inventories and weak demand will remain the core bottleneck for copper prices. Market participants should abandon one-sided bullish views, closely monitor actual March demand recovery and Middle East developments, and maintain strict risk control.