Will weak U.S. imports and a vacuum in Chinese Spring Festival data be short-term headwinds for copper prices?

# Source: Wall Street Insights

## By Zhang Yaqi

Morgan Stanley believes that copper prices are on a long-term bullish trajectory, supported by expectations of interest rate cuts and an extreme supply shortage (a projected deficit of 600,000 tons in 2026). However, in the short term, U.S. import momentum has weakened due to adjusted tariff expectations. Coupled with the pre-Chinese New Year demand lull and the counter-seasonal accumulation of inventories, the market is facing pressure for micro-level adjustments. While constrained supply underpins price floors, short-term volatility risks remain.

The steady upward momentum of copper prices, bolstered by macroeconomic tailwinds, is now facing a test at the micro level. Despite ongoing support from interest rate cut expectations, tight supply, and emerging demand themes, weakening U.S. import activity and the pre-Chinese New Year demand vacuum are exerting short-term pressure on the market.

According to information from Zhuifeng Trading Desk, the Morgan Stanley team led by Amy Gower released a research report on the 22nd, noting that the narrowing of the COMEX-LME price spread is reshaping copper flow dynamics. After the import arbitrage window widened significantly in the fourth quarter of 2025, U.S. refined copper imports surged in December last year and early January this year. However, as market expectations for Section 232 copper tariffs in 2027 cooled, the narrowing spread has eliminated the economic incentive for further imports. This week, LME warehouses in the U.S. even recorded their first copper inflows in nearly a year, following a brief period of LME spot price backwardation.

Morgan Stanley pointed out that in December last year, China's apparent copper demand remained flat, refined copper exports stayed robust, and inventories accumulated counter-seasonally. With the Lunar New Year approaching in mid-February, the market is entering a data vacuum period, with no further clarity on demand conditions until mid-March.

Nevertheless, the extreme constraints on the supply side will provide floor support for copper prices. Morgan Stanley forecasts that global copper mine supply will grow by a mere 0.2% in 2026, leading to an estimated market deficit of 600,000 tons. The Mantoverde mine, owned by Capstone in Chile, has suspended production due to strikes (with an annual capacity of 106,000 tons), and the impacts of multiple supply disruptions in 2025 will spill over into this year. Analysts believe that amid tight supply and a strong macro backdrop, prices will be well-supported, but short-term fluctuations are unavoidable. As of press time, LME copper futures prices rose 0.57% to $12,913 per ton.

## U.S. Import Momentum Shifts Course

The U.S. copper import boom is losing steam. Morgan Stanley data shows that while U.S. refined copper arrivals surged in December last year and early January this year, the narrowing COMEX-LME spread has erased the financial incentive for continued large-scale imports. This shift stems from adjusted market expectations for Section 232 tariffs on refined copper, as the key mineral Section 232 investigation results released on January 14 did not impose tariffs.

More notably, there has been a reversal in copper flow directions. This week, LME warehouses in the U.S. saw their first copper inflows in nearly a year, driven by a brief period of LME spot price backwardation. This is weighing on LME prices and inter-month spreads, and LME inventories in Asia have also started to accumulate.

Morgan Stanley believes that the likelihood of copper exports from the U.S. is extremely low, but imports are expected to slow down. The decision on whether to impose tariffs on copper will be a key factor shaping the outlook for the second half of 2026 and 2027. For copper prices, the biggest downside risk is the U.S. completely ruling out tariffs on refined copper, which would allow stockpiled inventories to flow into the broader market.

According to bill of lading data, U.S. inventories are currently at extremely high levels, mainly concentrated in COMEX warehouses. Implied hoarding volumes in non-COMEX inventories indicate that substantial quantities of copper have flowed into the U.S. during the previous import boom.

## Chinese Demand Faces Seasonal Headwinds

China's apparent copper demand continued to register negative growth in December, refined copper exports remained strong, and inventories rose counter-seasonally. Additionally, the pre-Chinese New Year data vacuum has increased market uncertainty. With the Lunar New Year falling in mid-February, the market will not receive limited data on Chinese demand conditions until mid-March. The Yangshan copper premium has dropped to -$22 per ton, the lowest level since mid-2024.

At the same time, China's refined copper production has stayed robust. In 2025, China's refined copper output surged by 10% to hit a new record high. Despite facing an extremely tight global copper concentrate market and negative treatment charges (TCs), China has added significant smelting and refining capacity. The country successfully increased copper concentrate imports by 8%, with Chile and Peru as the largest suppliers, and Mongolia also contributing higher volumes.

Scrap copper is also supporting refined copper production growth. China's scrap copper imports rose by 4% in 2025, hitting an all-time high in December, indicating that smelters may be using more scrap copper to boost refined copper output. Asia is China's largest scrap copper supply region, while scrap copper flows from the U.S. have dwindled to near zero. As domestic refined production strengthens and imports account for a smaller share of the supply mix, China has even started exporting refined copper in recent months. If U.S. demand slows, the market could see further inventory accumulation.

## Mine Supply Extremely Constrained

Tight supply conditions will provide crucial support for copper prices. Morgan Stanley forecasts that global copper mine supply will grow by just 0.2% in 2026, as many mine supply disruptions from 2025 will persist into 2026. Capstone's Mantoverde mine in Chile has halted production due to strikes (106,000 tons annual capacity), and Lundin Mining has also slightly lowered its 2026 guidance. This is likely to constrain refined copper supply growth (Morgan Stanley forecasts 0.6%), leaving the overall market tight even when accounting for increased scrap copper usage.

However, there is room for a recovery in the second half of 2026 and 2027. Freeport McMoRan stated that partial areas of its Grasberg mine are scheduled to restart in phases in the second quarter of 2026. There is also potential for recovery at Ivanhoe's Kamoa-Kakula project, and First Quantum's Cobre Panama mine may resume operations as well.

According to Wood Mackenzie data, copper mine disruptions in 2025 may exceed 6% of total supply, with cumulative disruptions surpassing 1.4 million tons. Historical data shows that annual growth rates of copper mine supply fluctuated significantly between 2015 and 2024, while growth rates in 2025 and 2026 are at historically low levels.

## Market Outlook

Morgan Stanley projects a copper market deficit of approximately 600,000 tons in 2026, as limited mine supply growth (0.2% forecast) fails to keep pace with robust demand growth (1.8% forecast) driven by new catalysts such as data centers and energy storage systems.

The macroeconomic backdrop remains supportive of metal prices. Further interest rate cuts will benefit non-interest-bearing assets and key end-use industries, and the institution's foreign exchange strategists also believe there is room for the U.S. dollar to weaken moderately. Growing concerns over supply security and new demand themes like data centers are also boosting demand for physical assets. Copper positions have climbed steadily.

The institution held a positive view on metals including copper at the start of this year, but prices have already exceeded its Q2 forecast of $12,200 per ton. Analysts believe that tight supply and a strong macroeconomic backdrop will provide solid support for prices, but short-term fluctuations may occur given the uncertainty surrounding U.S. import trends.

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The above insightful content is sourced from Zhuifeng Trading Desk.

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