Copper’s machine-led rally looks set to falter
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Copper helps carry the world’s data — and the hopes of some inflation-wary investors.
The red metal, beloved of mining executives and climate change strategists alike, has soared in price since early February. Up more than 26 per cent on the London Metal Exchange (and more in the US, where prices hit a record this week), the metal is one of the top-performing commodities this year. But this looks more of a speculative rally than one driven by fundamental market changes.
Had demand for copper surged, it should be visible in Chinese trade data. That country represents 40 per cent of world copper imports. China has plenty of copper smelters but lacks enough domestically mined copper concentrate to feed them. But growth in copper ore import volumes has slowed in the past year, after a post-pandemic surge into 2023.
Near-term supply is not in a terrible state either. Most of the recent market angst concerned the Cobre mine in Panama, one of the world’s largest. It was forced to suspend production late last year due to environmental concerns. Even so, first-quarter production from the largest producers — roughly 70 per cent of world output — rose 5.5 per cent year on year, on Jefferies data. If anything, global copper demand is trailing supply slightly this year.
Speculators are playing more of a role than physical demand and supply. In the US, the Commodity Futures Trading Commission tracks data on non-commercial trading (long positions versus short) of certain commodities. For copper the net long position has surged since February, near the top of the 10-year range. Investors have been buying copper for months rather than simply closing out short positions. This is where the marginal copper buyer is coming from.
In recent weeks, the US exchange traded price of copper has surged much more than that on the LME, or in Shanghai. These purchases probably owe much to inflation hedging. Copper prices, more so than gold, tend to move in line with anticipated price trends, thinks Tom Price at Liberum. Over the past 10 years, the red metal’s price has moved in step with US long bond yields.
Copper prices have benefited from speculators buying for reasons unconnected to a surge in demand, or collapse in supply. But, so far, there is little evidence of either. Failing a surprise collapse in world copper supply, these bulls will grow stale waiting for more hopeful data.
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