Copper’s Record Surge at Risk as US Shipments Soothe Speculator Frenzy – Reuters

By Eric Onstad and Julian Luk

LONDON (Reuters) – Copper’s rapid ascent to record prices may not be sustainable in the near future, as market activity is primarily focused on shipping materials to address short positions in the U.S. Comex futures market, rather than reflecting strong demand from China, the largest consumer.

Last week, Comex prices surged to unprecedented levels, while prices on the London Metal Exchange reached an all-time high of $11,104.50 per metric ton, having risen 28% this year alone.

Analysts indicate that the fundamentals for copper remain robust, bolstered by a positive outlook driven by sustained demand for applications related to the global clean energy transition and increased usage of artificial intelligence.

This strong demand is set against a backdrop of limited supply, leading to heightened competition among miners for high-quality projects.

However, the current price rally appears precarious, propelled by significant speculative trading and an urgent effort to cover substantial short positions—bets that prices will decline, or hedging strategies employed by producers.

Reports suggest that around 100,000 metric tons of copper are en route to the U.S. Comex exchange, allowing entities to fulfill bearish obligations and potentially stabilizing the overheated market.

"It’s presently driven more by speculation than actual demand," noted Robert Montefusco of Sucden Financial. "The situation hinges on whether this demand materializes; if speculative positions unwind, prices could drop significantly."

On the Comex exchange, data revealed a total net short position of 7,525 contracts, equating to 85,334 tons. However, there was a notable contrast between the net long position of speculators, at 72,785 contracts (or 825,382 tons), and the net short position held by producers, totaling 91,502 contracts (1.04 million tons).

SHIPMENTS FROM SOUTH AMERICA

Commodity traders, including major firms and Chinese copper producers, are reportedly caught in a short squeeze on Comex. Many have arranged for copper shipments from Chile and Peru to the U.S., redirecting vessels that were originally scheduled to head to China under long-term contracts, as well as withdrawing some copper from LME warehouses.

It’s projected that over 20,000 tons from Chile will reach the U.S. by the end of May, with larger volumes expected in June and July, according to two sources from producers. However, the ability to transfer copper from LME warehouses to Comex may be constrained, as Chinese and Russian metals, which make up a significant portion of LME stocks, are not eligible for delivery to Comex.

As of the end of April, there were 17,250 tons of U.S. duty-exempt copper from Chile, Peru, and Australia recorded within the LME system.

CHINESE CONSUMERS AND SMELTERS HOLD BACK

Copper consumption in China, which constitutes about half of global demand, is currently sluggish due to challenges in the property sector and industrial consumers hesitant to purchase at record prices.

While China recently announced measures aimed at stabilizing its troubled property market, it may take time for this sector—typically a large consumer of industrial metals—to recover.

Indicators remain pessimistic, with the Yangshan copper premium, reflecting demand for imported copper into China, hovering around zero after dipping to negative $5 per ton last week, a stark contrast to $60 in March.

"Given the significant financial leverage in copper and ongoing weak fundamentals in China, there is a risk that investors might lose confidence in the trend," JPMorgan analysts stated in a recent note. "We believe this could lead to a healthy correction that sparks an increase in Chinese demand."

Much of the potential demand in China is currently dormant and may activate once prices decrease further, according to JPMorgan.

Investors and analysts continue to maintain a bullish outlook for the medium and long term, driven by increasing global demand and disruptions in mine supply.