US copper prices are rising to record highs as funds flow in

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

Copper futures traded in New York rose to an all-time high, with the most active three-month contract through July rising 11 percent last week to a peak of more than $5 a 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 difference of more than $1,000. Normally the two are more closely correlated, with a difference of less than $90 per tonne, Citi said.

The sharp rise was driven by speculators squeezing out traders who thought the premium in the U.S. market would fall, market insiders said. Fears about the level of inventory available for delivery in New York also encouraged more betting, they said. Speculative trading for those trying to make money on the direction of copper prices is considered easier on the Chicago Mercantile Exchange than on the London Metal Exchange, where contracts are more complex.

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

“It feels like a runaway market,” said Eleni Joannides, buyer research director at consultancy Wood Mackenzie. “There has been a huge amount of speculatively managed money longs coming in in recent months. It’s just huge.”

The sudden, sharp rise in the red metal follows similar price moves in recent years for nickel, gas and cocoa, underscoring the volatility in commodity trading as supply is disrupted and traders take a greater share of the total cost of buying and selling wear.

It also comes as miner BHP seeks to take over Anglo American in a £34 billion deal that would boost its portfolio of mines that generate the superconducting metal essential for decarbonizing the global economy.

Copper has a wide range of applications, for example in buildings, power cables and electric cars. But shortages of ore from mines are expected to feed into refined metal shortages as refiners curtail production due to a dip in profitability.

Line chart of the difference in contract prices on Comex and LME ($) showing the gap between New York and London copper

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

It “points to the disconnect we have in the market and the impact of fund buying this year,” said Natalie Scott-Gray, base metals analyst at StoneX. “It’s the markets that are getting over-excited” about the long-term growth in copper demand and the risks to supply.

Commodities are gaining popularity among asset managers and hedge funds as a hedge against inflation, at a time when expectations of interest rate cuts by the US Federal Reserve have been reversed this year.

The buying was further fueled by a news report on Wednesday that Beijing was considering a proposal for local governments to buy unsold homes, which could boost demand for copper.

The rally also signals that U.S. copper supplies are tighter because of logistical challenges from limited capacity on the Panama Canal and the fallout from a bridge collapse in Baltimore in March, analysts say.

Another problem is that much of the excess copper in China – where demand this year has been weaker than many expected – is not eligible for supply through the CME and the remaining material available 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 that “things are extremely overbought.”

Line chart of Managed money longs ('000 contracts) showing the increase in net copper longs on CME copper contracts

Short-covering has played a major role, according to several analysts, as traders cut their bets on falling copper prices in the US, which were accompanied by trades on higher copper prices on the LME or the Shanghai Futures Exchange.

Some traders are concerned that the US copper market could spiral out of control, just as the nickel market did in March 2022. A short squeeze sent nickel to a multi-day high, forcing the market operator, the LME, to intervene. 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 could lead to some pressure on the CME to temporarily change the rules, such as allowing delayed delivery, to resolve the current market dislocation,” said Colin Hamilton, a commodities analyst at BMO.

CME said “we are continuously monitoring our markets, which are functioning as designed, as market participants manage buyer risk and uncertainty.”

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