Copper's bull run is as much about market fracture as it is about a straightforward supply crunch.
Everyone’s talking about a copper supply crunch. Physical premiums are soaring. Smelters are being squeezed by a shortfall of mined concentrate.Just to cap it all, London Metal Exchange stocks have just been raided, reducing available inventory to below 100,000 metric tons for the first time since July.
Yet it’s not as if the global manufacturing sector is similarly fired up. September saw activity contract in China, Japan, Europe and, for the ninth consecutive month, the United States. Tariff uncertainty hangs heavy on the world’s largest manufacturing nations and it is also key to understanding copper’s current euphoria.This week’s raid on LME copper stocks saw 54,350 tons, around a third of registered inventory, cancelled in preparation for physical load-out. It’s highly likely this metal is destined either for the United States or to fill a supply-chain gap caused by other units heading that way. The United States is now the market of first resort for copper thanks to the lingering threat of import tariffs. A decision on whether to extend tariffs on copper products to refined metal has been deferred until the middle of next year. But the CME US copper contract is still commanding a hefty premium over the international price traded on the LME, keeping the physical arbitrage window wide open.US imports of refined copper more than doubled year-on-year to 1.19 million tons in January-August and more will arrive as long as the CME premium covers the shipping costs. Which at around $500 per ton on a three-month forward basis it more than comfortably does. CME stocks, all customs-cleared, have mushroomed from 85,000 tons at the start of the year to 394,000 tons and now account for 55% of global exchange inventory.…and famine But there is growing tightness everywhere else in the world as metal continues to gravitate towards the United States.by 39% to $345 per ton over the LME price and is pushing for $350 per ton for Chinese buyers, who find themselves in the unfamiliar position of being second in line in the copper delivery queue.The mass relocation of copper inventory to the United States has extended to China’s bonded warehouse zones with 128,000 tons re-exported to the United States since February, according to Chinese customs. Chinese producers have also been lifting deliveries to LME warehouses as a tightening London market opens up an export arbitrage window. Chinese-brand copper accounted for 82% of LME registered stocks at the end of October, up from 51% at the start of January. Yet even as global inventory is reshuffled, total exchange stocks are rising, closing November above the 700,000-ton mark for the first time since early 2020. There is no global shortage of copper but there is a widening split between the US market and the rest of the world. It’s captured by the CME and LME forward curves – in comfortable contango and widening backwardation respectively.The splintering of the copper market is not just geographical but also internal. China has brought too much smelting capacity online in too short a time for the world’s mines to supply, a mismatch compounded by this year’s litany of disruption at some of the world’s largest mines such as Grasberg in Indonesia. The result is a crisis of smelter profitability. Spot processing fees have been trading at negative levels for months, meaning smelters are giving away for free what should be a core revenue stream. Several Western smelters have closed and the Chinese smelter sector is now confronted with the hangover from its previous exuberance in the form of potentially negative fees for next year’s annual contracts.It will also monitor members’ spot market activity to prevent what it called “malignant competition” between smelters for concentrate. Collective cutback announcements are standard operating procedure for China’s metal smelters whenever the going gets tough but the impact has as often as not been less than promised. The announcement, though, is evidence of a dysfunctional raw materials market. The current annual benchmark pricing model is at risk of splintering into multiple short-term and binary deals under the pressure.So is the world facing an imminent copper supply crunch? Well, it depends very much on which Doctor Copper you ask. But none of them is saying much about the state of global manufacturing right now.Silver, copper eclipse gold as top metals bets on supply fears Since bullion hit a record on Oct. 20, it’s moved mostly sideways, while silver has gained more than 11% to a fresh record and copper has climbed almost 9%.Rio Tinto’s new CEO pushes a sweeping overhaul aimed at tightening costs, simplifying business structures and boosting long-term growth.The Gitxaala Nation filed a legal challenge seeking to overturn the province’s granting of multiple mineral claims on their territory.The new conditions require miners, among other things, to pre-pay a 10% royalty within 48 hours and secure a compliance certificate.
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