Copper Price Approaches Historical Highs, Citi Sees $15,000/Ton Upside

The copper market is forging a path of its own.

Citigroup's latest research report points out that even under the pressure of the ongoing blockade of the Strait of Hormuz, the physical market for copper has shown significant structural resilience. Energy transitions and AI demand, increased military demand, and supply-side constraints together form the triple buffer that helps copper prices withstand cyclical shocks.

Citigroup maintains its near-term target price at $13,000 per ton; once Hormuz reopens, copper prices could average $15,000 per ton by the end of the year. The probability weightings for three scenarios are: bull market 30%, base case 50%, and bear market 20%.

On Monday, copper prices at the London Metal Exchange rose by 0.2% to $13,609 per ton, approaching the highest historical closing price. Despite Trump dismissing Iran's latest peace proposal as "completely unacceptable," the metals market still rose along with Asian stocks.

Triple Structural Buffers

The demand for copper related to energy transitions and AI currently accounts for about 18% of global consumption, and has contributed nearly all of the incremental demand since the pandemic.

Citigroup estimates that even with a 5% decline in cyclical demand, global refined copper consumption would only decrease by about 1.7%, and structural demand has substantially reduced the risk of a downturn in overall demand. High oil prices may also stimulate a faster transition to energy, driving increments in copper demand for electric vehicles, energy storage, and power grid infrastructure.

In terms of military demand, global military-related copper consumption is about 2.5 million tons per year, accounting for about 9% of the total global consumption. The extensive use of consumable equipment such as drones and missiles means that the growth rate of military copper consumption could exceed military expenditure itself.

On the supply side, scrap copper is the main source of copper supply increments this year, and its recycling costs continue to rise with energy prices, having a particularly critical impact on the overall supply and demand balance.

"Better Safe Than Sorry" Logic Supports High Prices in the Medium to Long Term

The global supply chain is shifting from a "just-in-time" to a "better safe than sorry" model, increasing the willingness to proactively increase metal inventories.

Citigroup estimates that if global refined copper inventory increases from the current level of about 1.3 months of consumption to 2 months, the copper price required to complete the inventory build-up within two years would be about $14,423 per ton; if the target is increased to 3 months, the required price could reach as high as $27,885 per ton. Within this framework, inventory surplus and high copper prices can coexist.

The on-off status of Hormuz is becoming the most important short-term variable for copper prices.