Copper’s rally looks stretched but supply constraints still underpin prices

Copper’s intra-day surge above US$14 000/t has all the hallmarks of a speculative overshoot. Chinese buying, in response to dollar weakness, and a broader re-balancing of investment portfolios to commodities in general, has driven prices well beyond most near-term forecasts. Yet dismissing the rally as purely speculative misses the starting point for the rally, that copper’s fundamentals remain tight, and the market is struggling to find enough supply even at record prices.

The global copper market is set to remain in deficit in 2026, with risks skewed toward deeper shortfalls rather than balance. Mined supply growth is likely to be limited to around 0.5 – 1%, constrained by low ore grades, persistent disruptions and project slippage following a bruising 2025. Accidents at several tier-one mines and conservative guidance resets mean output recoveries are proving slower and less reliable than consensus expects. Even with ramp-ups at Oyu Tolgoi and incremental gains from Africa and emerging producers, these additions are largely offset by grade declines at mature assets such as Escondida and the delayed restart of Cobre Panamá.

At the same time, metal flows are being distorted. Strong US imports ahead of anticipated tariffs on refined copper have diverted material away from traditional markets, draining visible inventories and amplifying tightness. This has encouraged financial positioning, helping push prices to levels that now test demand elasticity.

That elasticity is the key risk for 2026. Prices above US$10 000/t are sufficient to incentivise new supply and accelerate project approvals – environmental approvals permitting of course. At current levels, substitution and thrifting risks are rising, particularly in price-sensitive sectors such as autos, appliances, and construction. Demand growth is likely to slow toward 1.5 – 2.5% in 2026 from above 3.5% in 2025, as Chinese stimulus fades, property remains a drag and elevated copper-aluminium spreads encourage material substitution. Still, electrification, grid investment, data-centre build-outs, and resilient emerging-market demand should limit outright downside, keeping copper well supported even if prices retreat from current extremes.

For copper miners, the setup into 2026 is less forgiving than the commodity headline suggests. The sector has already enjoyed an outsized rerating, with a sharp second-half rally driven by supply shocks, tariff-led buying, and expanding by-product credits. The Bloomberg Intelligence Copper Mining Index significantly outperformed copper and global equities in late 2025, leaving valuations stretched. The sector now trades at around 9x EV-to-Ebitda – roughly two standard deviations above its mid-cycle average – with many stocks priced near 10-year multiple highs.

That does not mean earnings momentum disappears. Even under a scenario where copper prices fall US$3000/t from spot, sector Ebitda would still rise by more than 10% in 2026, reflecting operating leverage and strong by-product pricing. Under BI’s US$12 250/t copper outlook, Ebitda growth could exceed 40%. But after the rerating, equity upside becomes increasingly selective and execution-dependent.

Smaller, more leveraged miners with meaningful precious-metal by-products and growth optionality are best positioned to outperform if copper consolidates. Companies such as KGHM, Lundin Mining and Hudbay benefit from silver or gold exposure and clearer growth pathways. In contrast, larger, steadier names like Antofagasta and Southern Copper offer defensiveness and cash returns but may require copper price weakness to outperform. First Quantum’s upside remains deferred pending clarity on Cobre Panamá, while Ivanhoe and Freeport hinge on operational stabilisation after accident-driven downgrades.

In short, copper’s rally may be stretched, but it is not groundless. Structural supply constraints, rising incentive prices and resilient end-use demand argue against a return to pre-2024 price levels. For miners, however, 2026 raises the bar: with valuations high, the next leg of returns will be driven less by copper beta and more by delivery, discipline, and cost control.

Read the article online at: https://www.globalminingreview.com/mining/02022026/coppers-rally-looks-stretched-but-supply-constraints-still-underpin-prices/