US copper prices soar to record high as funds pile in

US copper prices have blown out to a record premium over the global benchmark in London, as speculative funds pile in and traders are forced to cover short bets on the world’s most important industrial metal.

Copper futures traded in New York surged to an all-time high, with the most active three-month contract to July rallying 11 per cent in the past week to a peak of more than $5 per pound on Wednesday.

The price, equivalent to more than $11,000 per tonne, pushed the difference between copper prices in the US and the global benchmark in London to a record gap of more than $1,000. Typically the two are more closely correlated, with the difference less than $90 per tonne, according to Citi.

The sharp rise was driven by speculators squeezing out traders who had thought that the premium on the US market would fall, according to market insiders. Fears over the level of stock available for delivery in New York also encouraged more betting, they said. Speculative trading activity for those trying to make money on the direction of the copper price is viewed as easier on the Chicago Mercantile Exchange than at the London Metal Exchange, where contracts are more complex.

Commodity traders with bearish positions, including Trafigura and others, are rushing to secure copper to deliver into the US and close out their short positions, according to two people familiar with the matter. Trafigura declined to comment on the short position.

“It does feel like a runaway market,” said Eleni Joannides, research director of copper at Wood Mackenzie, a consulting firm. “There’s a massive amount of speculative managed money longs that have gone in over the past months. It’s just huge.”

The sudden, sharp rise in the red metal follows similar price moves in recent years in nickel, gas and cocoa, underscoring the volatility in commodities trading as supplies are disrupted and traders bear more of the overall cost of buying and selling.

It also comes as miner BHP attempts to take over Anglo American in a £34bn deal that would boost its portfolio of mines generating the superconductive metal vital to decarbonising the global economy.

Copper has a wide ranges of uses, for instance in buildings, power cables and electric cars. But shortages of ore from mines are expected to feed through to shortfalls of the refined metal as refineries curtail production because of a dip in profitability.

Analysts said the rise in US copper prices also reflected a heavy flow of US-based money into commodities.

It “points to the disconnect we have in the market and the influence of fund buying this year”, said Natalie Scott-Gray, base metals analyst at StoneX. “It is the markets getting overexcited” about the long-term growth in copper demand and risks to supply.

Commodities have been gaining in popularity among asset managers and hedge funds as a hedge against inflation, at a time when expectations on US Federal Reserve interest rate cuts this year have been wound back.

Further fuelling the buying was a news report on Wednesday that Beijing was considering a proposal for local governments to buy unsold homes, which could stimulate copper demand.

The rally also indicates that copper supply is tighter in the US because of logistical challenges stemming from restricted capacity on the Panama Canal and the fallout from a bridge that collapsed in Baltimore in March, say analysts.

A further issue is that much of the excess copper in China — where demand has been weaker than many had expected this year — does not qualify to be delivered on the CME and the remaining available material on the market is Russian, which the US has banned.

Edward Meir, an analyst at Marex, said the price move was “all futures related” and “things are extremely overbought”.

Short covering has played a big role, according to several analysts, as traders closed out bets on falling US copper prices that had been paired with trades on higher copper prices on the LME or the Shanghai Futures Exchange.

Some traders are concerned that the US copper market could go out of control in the manner that the nickel market did in March 2022. A short squeeze sent nickel to a record high in days, requiring the market operator, the LME, to step in to restore calm to the market.

Trafigura said it was “one of the largest physical suppliers of copper to North America and given the premium in this market we are shipping larger quantities of the metal to Comex”.

“This may lead to some pressure on the CME to temporarily amend rules, such as allowing for deferred delivery, to solve the current market dislocation,” said Colin Hamilton, a commodities analyst at BMO.

CME said “we continuously monitor our markets, which are operating as designed as market participants manage copper risk and uncertainty”.