Galaxy Securities: Some core copper mining stocks in A-shares currently have high valuation safety margins in 2026, highlighting their investment value

Galaxy Securities believes that advancing the domestic copper resource reserve system aims to enhance the resilience and safety of the domestic copper supply chain. Under the global centennial changes, major powers’ strategic competition for key mineral resources and the construction of independent supply chain systems will lead to an expanding global copper gap, with copper prices rising due to “safety premiums.” In the short term, copper prices are affected by misjudged expectations of Federal Reserve policies, but have some potential for recovery. Downstream demand recovery solidifies the fundamental support, and some core copper mining targets in A-shares have high valuation safety margins through 2026, highlighting their investment value. We remain optimistic about continued copper price increases.

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【Galaxy Nonferrous Huali】Industry Commentary | National Reserves of Copper Highlight Strategic Value, Injecting “Safety Premium” into Copper

Key Points

Event: On February 3, the China Nonferrous Metals Industry Association stated that improving the copper resource reserve system involves expanding the national copper strategic reserve and exploring commercial reserve mechanisms. This includes selecting state-owned backbone enterprises to pilot commercial reserves through fiscal interest subsidies. In addition to reserves of refined copper, research may also include large-volume, easily liquidated copper concentrates into the reserve scope.

High-level reserve accumulation demonstrates strategic attributes, anchoring supply chain security: Historically, national reserves have been released at low prices, with the most recent instance in July 2020, when the pandemic caused economic stagnation and copper prices fell to a five-year low of 33,200 yuan/ton. The national reserve released 300,000 tons of copper to stabilize the market, absorb excess supply, and stabilize expectations. This time, the high-level copper reserve exceeds the scope of price stabilization, aligning with the Party’s 20th National Congress’ goal to “ensure the security of energy and resource supply chains for key industries” and the 20th Central Committee’s Third Plenary Session’s “improvement of strategic mineral resource exploration, production, reserve, and sales coordination system.” The aim is to enhance the resilience and safety of the domestic copper supply chain.

The US is also advancing critical mineral reserves, with copper resources becoming a focal point: The US is building a strategic reserve system for critical minerals, planning an initial $12 billion program to establish a controllable supply chain. Combining this with its precedent of surprise control over Venezuela’s oil, the copper resources in the Americas—home to the world’s first and third largest copper producers—are also targets under US Monroe Doctrine control. Although recent market attention to potential US tariffs on copper has waned, and the COMEX-LME copper spread has narrowed, raising concerns about US copper stock outflows and copper price suppression, copper remains a key resource for US manufacturing resurgence, military, AI infrastructure, and grid rebuilding. It is likely to be solidified as a strategic reserve rather than flowing out.

Major powers increasing reserves to reshape supply-demand balance and push up copper “safety premiums”: In the context of global centennial changes, resource security has become a focus of major power competition. Increasing copper reserves will reshape the industry’s supply-demand balance, reduce circulating supply, and intensify tensions. Short-term shortages at the mine level are unlikely to change; the copper mine gap is expected to further widen by 2026, with global refined copper surplus shrinking to 170,000 tons. If China reserves 300,000 tons like in 2020, combined with continued inflow of US copper stocks, the global refined copper market is expected to shift to a deficit by 2026, pushing copper prices higher. Major power struggles for resource security and the construction of independent supply chains will lead to an expanding global copper gap, with prices rising due to “safety premiums.”

Wosh hawkish expectations are exaggerated; copper prices are expected to recover and rebound: Recently, copper prices fell sharply along with gold and silver. An important factor was Trump’s nomination of Kevin Woorh, considered a “hawkish” figure, as the new Federal Reserve Chair. However, the market may overestimate Woorh’s hawkish stance, believing that his balance sheet reduction mainly stems from concerns over the Fed’s new QE policies post-2008. Now, the environment has changed, and Woorh is more inclined to cut rates by 2025. Additionally, US bank deposits are less than $3 trillion in 2026, and with Trump’s push for fiscal expansion and the Treasury issuing bonds to stabilize the bond market, the Fed’s balance sheet reduction is less feasible. The market still expects two rate cuts by the Fed in 2026, and copper prices are likely to recover after being misjudged by overly hawkish expectations regarding Woorh.

Copper price correction activates downstream demand, with orders increasing significantly: The recent sharp decline in copper prices has significantly improved downstream acceptance, accelerating procurement and increasing trading activity, which stimulates demand. On February 2, Mysteel surveyed 31 domestic copper rod companies (including refined and recycled copper rods, with an annual capacity of 6.01 million tons) and 6 traders. The survey showed that copper rod orders on that day reached 43,000 tons, up 29,000 tons from the previous trading day, a 198% increase. Among them, refined copper rod orders reached 42,000 tons (a historical high since the survey began), up 29,000 tons from the previous day, a 229% increase. Falling prices stimulate inventory replenishment and spot procurement, leading to smoother price transmission, stronger terminal acceptance, and gradually emerging demand support, providing a fundamental basis for copper prices to stabilize and rise.

Investment Recommendations

Advancing the domestic copper resource reserve system aims to improve the resilience and safety of the domestic copper supply chain. Under the global centennial changes, major power competition for resource security will lead to an expanding global copper gap, with prices rising due to “safety premiums.” In the short term, copper prices are affected by misjudged expectations of Federal Reserve policies but have some potential for recovery. Downstream demand recovery solidifies the fundamental support, and some core copper mining targets in A-shares have high valuation safety margins through 2026, highlighting their investment value. We remain optimistic about continued copper price increases.

Risk Warning

1. Risks of slower-than-expected domestic economic recovery; 2) Risks of the Federal Reserve’s rate cuts being less than expected; 3) Risks of significant declines in nonferrous metal prices; 4) Risks of trade conflicts and tariffs between China and the US exceeding expectations.

(Source: People’s Financial News)