Copper price divergence intensifies! UBS bets on a "supply collapse", while Goldman Sachs warns of an "overheating correction"—has the turning point arrived?

Copper price divergence intensifies! UBS bets on a "supply collapse", while Goldman Sachs warns of an "overheating correction"—has the turning point arrived?

At the critical moment when copper prices surged 22% in one month and broke through $13,000/ton, Wall Street is seriously divided on the future trend of this most important global industrial metal.

According to Windchaser Trading Desk, UBS analyst Daniel Major’s team warned in a report released on January 12 that although copper prices have soared recently, project approvals (FID) by mining companies remain at extremely low levels from 2023 to 2025. Furthermore, the shift in the capital expenditure cycle is lagging behind, indicating a severe structural shortage in the copper concentrate market in 2026/27.

This structurally bullish view sharply contrasts with the short-term warnings issued by Goldman Sachs and Citi. While both banks have recently raised their short-term target prices, they warn that current prices are driven by a “stockpiling spree” triggered by expectations of US tariffs. Goldman Sachs believes that once the tariff policy becomes clear in Q2 and the stockpiling ends, the market will again face the reality of global surplus; Citi bluntly stated that “January may be the price peak for the entire year.”

The fierce collision of these opposing views draws investors' attention back from short-term macro games to the essence of the industry: Against the backdrop of surging energy transition demand, can global mining truly provide enough copper? UBS data offers a pessimistic answer—capital efficiency is sharply declining, and new supply is struggling to catch up.

The "Illusion" of Capital Expenditure: More Money Spent, No More Copper

In its report “Copper: Capex Cycle Intensifies Supply Challenge”, UBS reveals a fact that excites long-term bulls but worries downstream players: Mining companies are spending money, but efficiency is sharply declining.

UBS points out that over the past decade, the medium-term consensus on copper has always been bullish, yet the supply side has been able to “squeeze out” enough copper to avoid shortages. However, this time things are different. Even though large miners are increasingly optimistic about copper’s long-term prospects, and new projects have stable returns, the number of project final investment decisions (FID) in 2023-2025 remains low.

Key data is striking:

  • Actual investment shrinks: Global copper capital expenditure nominally holds steady at about $40 billion, but if inflation is excluded, actual capex in 2025 is only about 30% of the 2013 peak level, with a declining trend over the last three years.
  • Capital intensity surges: Money is worth less. UBS reviewed the project pipeline and found that for potential projects likely to be approved between 2025-2030 (about 11 million tons of capacity), the average capital intensity is about $25,000/ton. In contrast, projects approved/completed between 2021-2025 (about 3.8 million tons) were only $17,000/ton.
  • This means: Capital intensity has increased by 50%. In other words, $1 billion used to bring an extra 60,000 tons of copper, while in the future the same $1 billion will only bring about 40,000 tons.

UBS analyst Daniel Major’s team states directly: “Although demand prospects are mixed, analyzing the capex cycle makes us convinced that the copper market will enter a shortage in 2026/27, and inventory depletion will support prices to rise further.”

$175 Billion Needed to Fill the Gap, Approval Speed Seriously Lags

To quantify the seriousness of the supply crisis, UBS built a long-term model. The model shows that if only currently approved or highly likely “baseline scenario” projects are considered, global mine supply will peak in 2028-2030 and then begin to decline. By 2035, the supply-demand gap will expand to a staggering 7 million tons.

UBS estimates that to fill this gap, the industry needs to act immediately:

  • Capex for new projects needs to rise to $5 billion in 2026;
  • By 2030, it must grow to $20 billion per year and be maintained through 2035;
  • Cumulative new project spending must exceed $175 billion.

However, reality is not optimistic. New project approvals in 2023-2024 are still near cyclical lows. Although 2025 approvals rebound to about 800,000 tons, considering a 3-4 year construction cycle, this speed is still insufficient to meet demand growth.

Prices Have Hit the "Incentive Line", But Giants Prefer M&A

UBS believes that the current spot price has reached or surpassed the level required to incentivize new project investment. The bank calculates that, based on a 15% internal rate of return (IRR) threshold, the long-term copper price needs to reach $5.0/lb (about $11,000/ton) to incentivize most new projects.

Although prices have met this threshold, supply response remains sluggish. UBS notes that capital allocation priorities for giants like BHP and Rio Tinto have shifted toward growth, but more often by acquiring existing resources through mergers & acquisitions (M&A), rather than taking on the high risk of developing new mines.

The report lists key projects likely to reach final investment decision (FID) in the next 2-3 years, including expansions of Escondida and Spence in Chile, Vicuna and Mara projects in Argentina, and the Bagdad and Resolution projects in the US.

UBS believes that with Argentina’s RIGI bill (large-scale investment incentives) and possible improvement in US regulatory environment, some projects may accelerate, but overall, “the pace of capital deployment will still make it hard to avoid slowing supply growth for the next 2-3 years.”

Thus, the market needs a sustained period of high prices to stimulate alternative demand or reduce consumption.

Goldman Sachs and Citi’s Warning: “Fake Prosperity” Amid Tariff Panic

Unlike UBS's focus on long-term supply bottlenecks, Goldman Sachs and Citi’s attention is on abnormal short-term demand. Their conclusion is surprisingly consistent: The short-term surge is too fast, beware of a correction.

According to Windchaser Trading Desk citing a Goldman Sachs report, analysts Eoin Dinsmore’s team pointed out that the recent copper surge is mainly driven by “US stockpiling”. The market worries that the US will impose tariffs on refined copper, leading to massive metal flows into the US market. Goldman warns that once Q2 tariff policy is clarified (delayed or implemented), motivation for stockpiling will disappear, and the market will refocus on the expected 300,000-ton global surplus in 2026. Goldman maintains its forecast that prices will fall to $11,200/ton in Q4 2026.

Citi’s views are even more radical. The team led by Tom Mulqueen said in a January 6 report that, although they have raised the short-term target to $14,000/ton, “January may be the price peak for 2026.” Citi warns that prices above $13,000 will trigger a surge in scrap copper supply, balancing the market. Unless there are new macro catalysts, prices will eventually return to around $13,000/ton.

UBS counters this short-term perspective in its report. UBS admits the recent rally is driven by investor positioning, and short-term prices may consolidate, but emphasizes that “the contrast between supply challenges and resilient demand creates a compelling fundamental scenario.” UBS firmly believes 2026 will be the year the market truly feels a “physical shortage”, and ongoing inventory declines will support further price increases.

In summary, the current copper market is extremely divided:

  1. Long-term logic (UBS): Mining investment shortfalls and soaring costs are irreversible physical constraints. Shortages in 2026/27 are inevitable, and current prices are just the prelude to a long-term bull market.
  2. Short-term logic (Goldman Sachs/Citi): The current surge is based on a fragile equilibrium of “tariff panic” and “US stockpiling”; once policy uncertainty clears, surplus fundamentals will drag prices back to earth.

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The above wonderful content is from Windchaser Trading Desk.

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