US Copper Prices Rise to Record High as Funds Pile up - Latest Global News

US Copper Prices Rise to Record High as Funds Pile up

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U.S. copper prices rose to a record premium over the global benchmark in London as speculative money flows and traders are forced to take 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 gaining 11 percent last week to hit a peak of over $5 a pound on Wednesday.

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

The sharp rise came as speculators squeezed out traders who had believed the premium in the U.S. market would fall, market insiders say. Fears about the amount of inventory available for delivery in New York have also led to more bets, they said. Speculative trading activities for those who want to make money on the development of the price of copper are considered easier on the CME than on the LME, where the contracts are more complex.

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

“It actually feels like an out-of-control market,” said Eleni Joannides, copper research director at Wood Mackenzie, a consulting firm. “Enormous amounts of speculatively managed money have been invested in recent months. It’s just huge.”

The red metal’s sudden, sharp rise follows similar price moves in recent years for nickel, gas and cocoa and underscores volatility in commodity trading as supplies are disrupted and traders bear a larger share of the overall costs of buying and selling.

Also, mining company BHP is seeking to take over Anglo American in a £34bn deal to expand its portfolio of mines that produce superconducting metal, which is crucial to decarbonising the global economy.

Copper has a wide range of uses, for example in buildings, power cables and electric cars. However, ore shortages at mines are expected to impact a shortage of refined metal as refiners cut production due to declining profitability.

Analysts said the rise in U.S. copper prices also reflected a strong inflow of U.S. money into commodities.

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

Commodities have become increasingly popular among asset managers and hedge funds as a hedge against inflation, while expectations of Federal Reserve interest rate cuts have been tempered this year.

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

The rally also suggests that U.S. copper supplies are tighter due to logistical challenges caused by the limited capacity of the Panama Canal and the fallout from a bridge that collapsed 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 suitable for supply to the CME and the remaining material available on the market is Russian material, which the USA has banned.

But Marex analyst Edward Meir said of the price action that “everything is related to the future” and “things are extremely overbought.”

Line chart of managed money long positions (thousand contracts) showing the increase in copper net long positions in CME copper contracts

Short covering played a big role, according to several analysts, as traders made bets on falling U.S. copper prices that were linked to trades for higher copper prices on the LME or the Shanghai Futures Exchange.

Some traders fear that the US copper market could spiral out of control in the same way that the nickel market did in March 2022. A short squeeze sent nickel to a record high in just a few days and required intervention from market operator LME to bring calm back to the market .

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

“This could result in pressure on the CME to temporarily change rules, such as allowing for delayed delivery, to resolve current market dislocations,” said Colin Hamilton, commodities analyst at BMO.

CME said: “We continually monitor our markets as they operate as market participants engage with copper risk and uncertainty.”

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