Zhongjin: The short-term demand shock of copper does not change its long-term supply narrative.

amasu2027 Amoa-Kakula, TFM production, Russian Malmyzhskoye production, Chilean Collahuasi, and QB2 production. In addition, the resumption of production at the Cobre copper mine in Panama after the dispute resolution could also bring further risks of oversupply in the copper mining supply chain.The slow release of proximal copper supply delays the theoretical peak time of distal peak time, and we currently expect the peak of copper supply to reach in 2028, while last year the widely predicted peak time was in 2027. However, the postponement of the peak time does not mean that the supply narrative will be delayed. The sustained lower-than-expected copper mine capacity has essentially expressed the long-term supply shortage now. The lack of historical capital expenditure in copper mine projects has caused a lack of project flow, and the declining grade of existing mines and the increasing resource protectionism have also supported the interference rate of copper mines to be at a high level since 2016. Therefore, we believe that the extension of the peak path will not change the endpoint. From a total perspective, the expansionary capital expenditure of global copper mines is still insufficient Source: WoodMac, Company Research Department Graph: Year-on-year decline in copper ore processing grade Source: Woodmac, CICC Research Department In terms of total amount, copper mine supply still cannot meet the demand increment, and price mechanisms need to intervene to match supply and demand From the total perspective, we expect that by 2028, the total increment of the remaining ore end under benchmark conditions will be 2.3 million tons, equivalent to an annual average increment of 0.57 million tons. There are only a few large projects waiting to be put into production such as Malmyzhskoye, Almalyk II, Reko Diq, Longjiang Phase II, and Grasberg Kucing Liar, and the average project scale has significantly decreased compared to the last supply peak. The CAGR growth rate in the next few years, calculated based on 2028 as the peak point, is about 2.7%. In terms of demand, we believe that copper, as a macro variety, has long-term demand that remains in line with macroeconomics. The IMF predicts that the CAGR of global GDP from 2023 to 2028 will be 2.8%. We also need to note that due to the continuous improvement in the global level of electrification, the elasticity of global copper consumption growth rate compared to GDP growth rate over the past three years has been greater than 1. We believe that this trend is likely to continue in the future. This also means that in the next few years, the growth rate of ore end supply may be difficult to match demand growth. In the current context of volatile trade policies and unstable economic expectations, short-term copper demand expectations have turned into non-linear fluctuations, leading to greater price fluctuations. Although short-term supply and demand rhythms are faced with uncertainty, we believe that the long-term narrative of supply constraints is still effective, in other words, copper mine supply is only a matter of path, not total amount. Graph: Limited project increment before 2028, and lack of large projects Source: ICSG, Company Research Department As mentioned earlier, the supply and demand under benchmark conditions only provide a theoretical supply-demand gap, and in reality, we may never see the peak of copper mine supply (unless the demand for copper mines peaks). Because the expected gap will drive up copper prices, the probability of projects being put into production outside of the benchmark conditions will also increase. According to WoodMac data, among the potential projects in the period before 2028, there are relatively large projects such as Russia's Udokan Phase II, Serbia's Timok Phase 2, Argentina's Josemaria, and Chile's Vizcachitas. According to WoodMac's forecast, by 2028, the supply-demand gap under benchmark conditions will be about 0.53 million tons, and it will continue to expand year by year, accumulating about 5.5 million tons from 2025 to 2030. Based on the incentive price curve based on the assumption of 15% IRR, the copper price corresponding to this "incentive supply amount" is about $11,000/ton. Graph: Over the next five years, the supply gap under benchmark conditions will gradually expand Source: WoodMac, Company Research Department Graph: Copper mine incentive price Source: WoodMac, CICC Research Department In summary, the short-term demand shocks of copper do not change its long-term supply narrative In the short term, we believe that the distortion of global economic growth expectations due to US trade policy shocks will amplify copper price fluctuations. The macro team of CICC calculated that the impact of current tariff policies on the US GDP growth rate in 2025 is around 1.4 percentage points. According to various tariff volumes already announced, we statically calculate that the global copper demand growth rate may face a risk of a loss of 1.8 percentage points under extreme conditions, and refined copper surplus may expand to 600,000 tons. Considering factors such as domestic policy responses and demand elasticity, we believe that the overall impact on copper demand growth is about 1 percentage point. Considering the bottom-support indicated by the cost-premium system, if the tariff risk does not further increase, we believe that the copper price can still maintain a premium of over 20% compared to the 90th percentile C1 cash cost + maintenance capital expenditure ($6,700/ton), that is, $8,000/ton. In the long term, the demand increment contributed by electrification will continue to drive the growth of copper demand, and at the same time, as the increment of supply under benchmark conditions gradually depletes, supply constraints will gradually emerge. We remain confident in the long-term rise in the center of the copper price. This article is reprinted from the "CICC Commodities" WeChat public account; GMTEight Editor: Chen Xiaoyi.