Copper prices are currently feeling short-term pressure from rising exchange inventories and overall market volatility. However, demand in the long run is still expected to be strong.
In January, China’s energy companies, which are major consumers of copper, increased their spending on grid expansion by 35% compared to the previous year. This indicates that grid expansion is on track.
The China Nonferrous Metals Industry Association forecasts a 5% growth in copper production this year, down from 10% last year. They have also called for the government to increase its copper reserves.
Right now, copper is facing challenges mainly due to rising exchange inventories and market fluctuations. LME copper stocks have increased by over 15% since the start of the year, reaching 125,000 tonnes. This rise is negatively impacting front-month contracts. Therefore, strategies like buying puts or setting up bearish spreads for March or April delivery could help hedge against potential price drops in the near term.
Despite these challenges, strong demand, especially from China, remains a key support factor. The 35% increase in grid expansion investment for January is a promising sign that the country is actively working towards its energy transition goals. This structural demand, which requires a lot of copper, provides a solid foundation for prices in the longer term.
In the past, we noticed a slowdown in Chinese refined copper output growth, and this trend is likely to continue through 2025. Additionally, ongoing labor negotiations in major South American mines could limit global supply, strengthening the market outlook later this year. The push for China to boost its strategic reserves would also tighten the market by removing physical copper from circulation.
Given these developments, a calendar spread might be a smart choice for derivative traders in the coming weeks. This strategy could involve selling near-term futures contracts while buying contracts for late 2026, allowing traders to take advantage of the anticipated price increase later this year. This approach enables them to build a long-term position while managing immediate challenges.
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