Copper staged its sharpest rally in nearly two months on Thursday as the geopolitical risk premium returned to base metals markets. US airstrikes on Iranian naval assets in the Strait of Hormuz — the latest escalation in a conflict that began with attacks on commercial vessels — sent oil prices higher and reignited fears about sulfuric acid availability. Sulfuric acid, a byproduct of oil refining used in the copper solvent extraction and electrowinning (SX-EW) process, has been in short supply since the Gulf conflict intensified. Canadian non-metallic mineral exports, led by sulfur, rose 50% month-on-month in May as alternative supply routes ramped up, but the disruption to Middle Eastern acid flows remains material for Chilean and Peruvian operations.
The price move lifted LME 3-month copper to $13,535/t as of 16:20 GMT, with an intraday high of $13,541/t — its highest since June 23. The move came despite LME cash copper trading at a $50/t discount to the three-month contract, a contango that normally signals ample nearby supply. Traders dismissed the spread as a function of metal trapped in financing deals rather than genuine availability. 'The contango is a warehouse game, not a physical signal,' one London-based trader told Reuters. 'Nobody who actually needs copper right now is getting it at a discount.'
The structural case for copper grew louder this week. The International Copper Study Group (ICSG) has now formally projected a 150,000-tonne refined deficit for 2026, abandoning earlier surplus forecasts. Refined production growth is expected to slow to just 0.9% this year — down from 3.4% in 2025 — as constrained concentrate availability and smelter bottlenecks bite. Mine output is growing at 2.3%, but that ore isn't reaching smelters fast enough. Chile's copper production fell 12.9% year-on-year in May, according to Cochilco data, while Indonesia's Grasberg mine continues to operate at reduced capacity following the September 2025 mudslide that cut 2026 production forecasts by 35%.
Inventory dynamics tell a more complicated story. Global visible stocks have risen 870,000 tonnes since early 2025, with LME inventories at eight-year highs and COMEX warehouses holding a record 650,000 tonnes. Macquarie analysts flagged this week that off-exchange US storage may hold an additional 550,000 tonnes. But the distribution of those stocks is profoundly uneven. COMEX inventories have swollen because US buyers, facing the prospect of a 15% refined copper import tariff, stockpiled aggressively throughout late 2025 and early 2026. That metal is effectively sequestered — ING notes it is 'unlikely to be released back into the global system' because tariff risk remains live, with the US Commerce Department's June 30 deadline for recommendations now passed and a decision pending.
Outside the US, the picture is much tighter. LME on-warrant stocks have drawn down sharply in recent weeks as Chinese import demand has revived. SHFE-monitored warehouse stocks fell 9.6% in the week to early July, continuing a drawdown from the all-time high of 326,327 tonnes reached in March. The Yangshan copper import premium — the best real-time gauge of Chinese physical appetite — climbed to $74/t, its highest since mid-April. Kedia Advisory noted that the combination of falling SHFE stocks and rising premiums points to genuine consumption, not speculative restocking.
Analyst views on the price outlook have diverged sharply. Goldman Sachs raised its year-end 2026 LME copper target to $13,735/t this month, arguing the ex-US deficit is now ten times larger than previously estimated at roughly 640,000 tonnes. JP Morgan sees a 330,000-tonne global shortfall driven by hyperscale data center construction. At the other end, Macquarie warns that the massive visible stock overhang — combined with forecast refined surpluses averaging 700,000 tonnes annually in 2027-28 — makes current prices unsustainable, with a potential floor near $11,000/t by Q3 2027. S&P Global splits the difference, forecasting a 2026 average just above $12,100/t, underpinned by supply tightness rather than demand growth.
The sulfuric acid question may prove the wildcard. Chile's copper industry — the world's largest — is heavily dependent on imported sulfuric acid for its SX-EW operations. The country was already facing supply gaps for H2 2026, according to JPMorgan analyst Wang. If Gulf shipping disruptions persist, Chilean output could fall further, tightening the concentrate market at exactly the moment smelters need more feed. Canadian sulfur exports are ramping up but cannot fully replace Middle Eastern volumes. The acid shortage is not theoretical — it is a physical constraint that gets worse with every week the Strait of Hormuz remains a conflict zone.
The interplay of these forces — structural deficit, tariff-distorted inventories, geopolitical supply risk, and the sulfuric acid bottleneck — creates a market where the range of plausible outcomes is unusually wide. Copper could spike to $14,500/t, as Citi recently suggested, if tariff implementation triggers another wave of US stockpiling. Or it could fall toward $11,000/t, as Macquarie argues, if demand softens and trapped COMEX metal eventually finds its way back to consumers. The only consensus is volatility.
Copper buyers face one of the most complex procurement environments in decades. The headline price is at $13,535/t — near multi-year highs — but the real challenge is fragmentation. Metal in the US is abundant but expensive, with COMEX copper at a roughly $400/t premium to LME. Metal outside the US is scarce and getting scarcer, with LME and SHFE stocks drawing down simultaneously. If you source copper for operations outside North America, secure Q3 and Q4 supply now — do not wait for a price dip that may not come. The sulfuric acid bottleneck in Chile means South American cathode supply is at risk of disruption; diversify your cathode sourcing to include African and European producers. If you have US-based operations, consider whether the COMEX premium justifies drawing down existing US warehouse inventory rather than importing. For contract strategy: fixed-price contracts with Q3 delivery carry significant upside risk. Consider floating-price structures indexed to LME with a collar at $12,500–14,500/t. Monitor the US tariff decision — expected within weeks — as the single most important binary catalyst. A 15% tariff implementation would spike COMEX premiums further and could pull LME above $14,000/t as arbitrage flows accelerate. A tariff withdrawal would likely release COMEX metal into the global market and could push prices toward $12,000/t.