Copper inventories are rising. Why is the spot market still tight?

Inventories are rising. Why is near-term copper supply still tight?

The premium of London Metal Exchange (LME) cash copper over three-month futures has risen rapidly, signaling stronger demand for copper for near-term delivery. Meanwhile, China's Yangshan copper premium has reached a record high.
Over the past two weeks, copper inventories on registered LME warrants have risen by 90 thousand tonnes, but most of the increase was in the United States. The US accounts for 63% of LME inventories and approximately 80% of global visible inventories. Inventories outside the US are at their lowest seasonal level since 2023, so the additional stocks have not eased tightness elsewhere.
European buyers are competing with the US for supplies, and physical copper premiums in Europe are also trading at record levels.

Indicators of Chinese end-use demand are weak, particularly those related to power grid investment and renewable energy. But smelter maintenance during annual processing fee negotiations, together with tighter scrap copper supplies, has supported demand for refined copper.
Changes to value-added tax policy on scrap copper have reduced its availability. The gap between spot copper concentrate processing fees and annual contract fees has reached a record level. Morgan Stanley believes this could lead to more extensive smelter maintenance this year, continuing to constrain refined copper supply.

Morgan Stanley estimates that US excess copper imports since 2026 amount to 740 thousand tonnes, equivalent to 3.4% of global refined copper demand. Although the COMEX-LME spot price spread has returned to zero, arrivals in the US remain high, and the three-month forward premium is still around 500 dollars per tonne.
The bank believes either excluding copper from tariffs or immediately imposing a uniform tariff could end excess US imports, easing supply in markets outside the US and pushing copper prices lower. If the decision continues to be delayed, stockpiling could continue, although it may slow as inventories within the US rise.
Phased tariff increases could be the most bullish outcome for copper prices: traders would have an incentive to accelerate imports before future rate increases, although imports could briefly slow when the measures are first introduced as traders adjust their arrangements.

Mine supply continues to face disruptions: Chile's copper production has fallen 8% year on year since 2026; First Quantum lowered the midpoint of its 2026 production guidance by 20 thousand tonnes, while Lundin Mining cut its full-year guidance by approximately 10 thousand tonnes because of winter storms.
Morgan Stanley forecasts LME copper prices of 14,800 dollars per tonne in the fourth quarter of 2026 and 14,400 dollars per tonne in the first quarter of 2027. But the bank is more cautious about the next 12 months: it expects mine supply to return to growth in 2027, the market to have more time to adjust to China's scrap copper policy, and US imports potentially to slow under several tariff scenarios.
The bank's supply-demand model forecasts that global mined copper production will fall 0.3% year on year in 2026 before returning to growth of 1.2% in 2027. Its price forecast table projects that LME copper will fall to 12,800 dollars per tonne by the fourth quarter of 2027.