Signals from both the supply and demand sides of the copper market are concurrently tightening. The premium for LME cash copper has expanded to its highest level since 2021, while major miners reported a significant year-on-year decline in second-quarter production. These two forces are creating a powerful synergy, driving copper prices up nearly 16% year-to-date and steadily approaching the historic record high.

According to reports, on Monday, the LME cash copper price briefly traded at a premium of $478 per tonne above the three-month futures contract, marking the largest backwardation since the 2021 short squeeze. David Wilson, a metals analyst at BNP Paribas, attributed this to the ongoing diversion of copper flows to the United States. Before the Trump administration's tariff decisions were finalized, large volumes of copper inventory were shipped to the US, depleting available supply in other regional markets.

On the supply side, according to a recent research report from Jefferies Financial Group Inc. covering roughly 55% of global mine copper supply, major miners' second-quarter copper production fell 3.9% year-on-year. Companies such as Freeport-McMoRan, Ivanhoe Mines, Antofagasta, BHP, and Newmont saw output hampered by operational disruptions, declining ore grades, or execution issues. Analysts at Jefferies Financial Group Inc. believe that mine supply risks are clearly skewed to the downside, and even under a scenario of just 2% global GDP growth, the copper market will face a significant deficit over the next 12 months or more.

As of the latest update, LME three-month copper was up 1.4% at $14,360.50 per tonne, on track for its eighth consecutive weekly gain and edging closer to the all-time intraday high of $14,527.50 per tonne set in January.

Abnormal Cash Premium, Tariff Fears Intensify Supply Diversion

The LME cash copper premium of $478 per tonne over the three-month contract is exceptionally rare in normal market conditions and typically signals severe tightness in immediate physical supply.

Bloomberg cited David Wilson's analysis, which indicates that the root of the issue lies in distorted arbitrage logic: as long as shipping copper to the US remains profitable, the incentive to deliver to LME warehouses is greatly diminished. Until the Trump administration's tariff policies become clearer, the market has consistently shipped copper inventories to the US, leading to a structural shortage of LME-deliverable stocks in Europe and other regions.

On Monday, all six base metals on the LME posted gains, with copper leading the advance. Aluminum rose 0.5%, and zinc increased 0.7%.

Major Miners' Q2 Production Under Collective Pressure

According to a copper mine production tracking report from Jefferies Financial Group Inc. released on August 16, the combined output from miners that have disclosed second-quarter data reached 3.113 million tonnes, down 3.9% year-on-year but up 2.7% quarter-on-quarter.

The miners with the most significant drags on output include: Ivanhoe Mines (Kamoa-Kakula project, down 43% YoY to 64,000 tonnes), Newmont (down 53% YoY to 17,000 tonnes), Freeport-McMoRan (down 18% YoY to 357,000 tonnes), Antofagasta (down 11% YoY to 142,000 tonnes), and BHP (down 5% YoY to 492,000 tonnes). The production cuts from these miners all point to common causes: operational disruptions, declining ore grades, and execution-related issues at certain projects.

Notably, some miners performed relatively well. Zijin Mining's second-quarter output reached 239,000 tonnes, up approximately 8.6% year-on-year. Teck Resources produced 136,000 tonnes, a year-on-year increase of roughly 24%. MMG also saw significant year-on-year growth with output of 138,000 tonnes. However, these bright spots were insufficient to offset the overall production shortfall from the major miners.

Supply-Demand Gap Expected to Widen, Analysts Maintain Medium-Term Bullish View

In the report, Jefferies Financial Group Inc. explicitly stated a bullish stance on the medium-term outlook for copper, with the core thesis resting on sustained global demand growth alongside severe supply constraints.

According to Jefferies Financial Group Inc.'s supply-demand model forecasts, global copper demand in 2026 is projected to reach 28.184 million tonnes, exceeding the supply of 27.742 million tonnes by 442,000 tonnes, creating a deficit. The expected gap is likely to widen further in subsequent years, reaching a deficit of 782,000 tonnes by 2030. Key demand drivers include grid construction, renewable energy, and electric vehicles. Jefferies Financial Group Inc. forecasts that global grid-related copper demand will grow at an average annual rate of 5.0% from 2025 to 2030, while copper demand from electric vehicles will grow at a robust average annual rate of 9.6%.

In terms of copper price forecasts, Jefferies Financial Group Inc. expects the average price in 2026 to be $13,380 per tonne (approximately $6.07 per pound), rising to $14,330 per tonne in 2027, and reaching $17,637 per tonne by 2030.

Regarding stock ratings, Jefferies Financial Group Inc. maintains a "Buy" rating on major copper miners such as Freeport-McMoRan, Anglo American, Glencore, First Quantum, Teck Resources, and Lundin Mining, with target prices offering varying degrees of upside from current market levels.

Disagreement on Future Supply Growth, But Risks Remain Downside

Despite concerns in the market about potential oversupply, with some arguing that the ongoing ramp-up of projects like Kamoa-Kakula, QB2, the Oyu Tolgoi underground mine, Cobre Panama, and Grasberg could bring substantial new supply, making a genuine deficit unlikely until later this decade, analysts at Jefferies Financial Group Inc. are cautious.

The report points out that even when incorporating these new capacity additions into the model, the overall supply risk remains clearly skewed to the downside. Declining ore grades and resource depletion are long-term structural factors constraining supply growth. Combined with recent operational disruptions at several major mines, supply-side resilience appears weaker than previously anticipated by the market. Given a relatively healthy global economy, Jefferies Financial Group Inc. believes the upside risks for copper prices remain significant.