Interest rate cut expectations resonate with supply crisis, copper prices continue to rise, approaching historical highs

According to the Zhitong Finance APP, after achieving the largest weekly increase in a year last week, copper prices continued to rise on Monday, with LME copper futures rising by 0.8% at one point, approaching the historical high set in May last year. As of the time of publication, LME copper was quoted at $10,730 per ton.

Investors are closely monitoring economic data that may affect the Federal Reserve's interest rate cut outlook, including the initial jobless claims and inflation expectations indicators to be released later this week, although the ongoing U.S. government shutdown may impact the release of this data.

Currently, according to the CME Group's "FedWatch" tool, the probability of the Federal Reserve maintaining interest rates in October is 5.4%, while the probability of a 25 basis point rate cut is 94.6%; the probability of the Federal Reserve maintaining interest rates in December is 0.6%, with a cumulative probability of a 25 basis point rate cut at 14.5% and a cumulative probability of a 50 basis point rate cut at 84.9%.

Federal Reserve Governor Michelle Bowman, nominated by Trump, recently reiterated the call for a more aggressive rate-cutting path, but emphasized that her differences with other decision-makers are "not as significant as the outside world imagines." Bowman stated that if the policy deviates from the track, adjustments should be made "at a relatively rapid pace." She believes that the current policy is more restrictive to growth, thus requiring a looser monetary environment.

Christopher Lafemina, an analyst at Jefferies Financial Group, pointed out in a report: "Despite the economy being relatively strong, the Federal Reserve's rate-cutting cycle should be positive for commodity prices." However, he added that the risk of commodity prices experiencing inflationary surges and harming the economy still exists.

Meanwhile, supply is also an important factor affecting copper prices. This year, several of the world's largest copper mines have faced challenges. In late May, the world's fourth-largest copper mine, Kamoa-Kakula in the Democratic Republic of Congo, experienced a seismic event, leading to a downward revision of its 2025 production guidance from 520,000-580,000 tons to 370,000-420,000 tons.

At the end of July, the world's largest underground copper mine, the El Teniente mine in Chile, suffered a mine collapse due to an earthquake. The Chilean state-owned copper company operating the mine stated that this year's production would be reduced by 300,000 tons, approximately 11% lower than previously expected.

On September 8, a large-scale wet material outflow incident occurred at the Grasberg mine in Indonesia, the world's second-largest copper mine, blocking access and trapping seven workers underground, two of whom died. Freeport immediately suspended operations in the mining area.

On September 24, U.S. mining giant Freeport-McMoRan (hereinafter referred to as "Freeport") announced that its Grasberg mine in Indonesia would cease production due to a mudslide incident and activate force majeure clauses. The Grasberg project is expected to reduce production by 200,000 metal tons in the fourth quarter of 2025 and nearly 270,000 tons in 2026, with production expected to return to pre-accident levels no earlier than 2027.

With supply constraints, major Wall Street banks have raised their copper price forecasts while warning that the copper market will enter a state of supply tightness. At the end of September, Goldman Sachs downgraded its global copper production forecasts for 2025 and 2026, changing the global copper market outlook from "oversupply" to "shortage" due to production interruptions at the world's second-largest copper mine. JPMorgan expects the average LME copper price in the fourth quarter to be $11,000 per ton, significantly higher than the July forecast of $9,350 per ton, and anticipates further increases in copper prices in early next year