The so-called 'inventory paradox' in copper markets presents one of the most debated topics among analysts in 2026. Headline exchange inventories above one million tonnes suggest ample supply, but a closer examination reveals that nearly 60% of these stocks sit in COMEX warehouses — the result of aggressive pre-tariff stockpiling by US importers ahead of potential Section 232 duties on refined copper.
LME inventories, by contrast, have fallen to 231,000 tonnes, the lowest since February 2026. SHFE stocks also declined 3% in early June, signaling stronger Chinese physical demand than the import data alone suggests. The regional imbalance has created unusual arbitrage opportunities but also masks genuine tightness outside the United States.
The structural deficit thesis rests on three pillars. First, mine supply disruptions at Grasberg, Kamoa-Kakula, and Chilean operations (El Teniente, Quebrada Blanca) have removed more than 500,000 tonnes of expected output from 2025-2026 supply. Second, smelter capacity is expanding while concentrate supply stagnates, creating a 'refining-to-mining disconnect' that accelerates inventory drawdowns. Third, demand from AI data centers, grid modernization, and EV infrastructure is growing at 3-5% annually, outpacing the 1.8% mine supply growth rate.
ICSG projects mined copper output growth of just 2.5% in 2026, far below the demand growth trajectory needed to satisfy energy transition requirements. Goldman Sachs and JP Morgan both expect the refined market to move into deficit, though they differ on the magnitude — ranging from 150,000 to 330,000 tonnes.
The inventory paradox resolves when viewed through this lens: stocks are high in one region for policy reasons, not because of fundamental oversupply. Outside the US, physical metal remains scarce, supporting elevated price levels.
Do not be misled by record headline inventory numbers. The vast majority is trapped in US warehouses and unavailable to the rest of the world. Non-US buyers should expect continued tightness and elevated premiums. Consider hedging H2 2026 requirements at current levels around $13,500-14,000/t, as any easing of tariff uncertainty could release COMEX stocks but also trigger a new wave of Chinese buying.