Non-ferrous frenzy fades

The Comex copper price peaked at $5.20/lb last week due to a short squeeze, which also is affecting the LME market.

Market dynamics

Traders were urgently shipping metal to CME warehouses in the U.S. and placing them on warrant to cover their short positions, contributing to a rally that has driven copper prices up by over 25% since the start of the year.

To provide an overview of May, the bigger picture if you will, the Comex copper market saw record trading volumes, exceeding 10 million mt (that’s over 22 billion lbs). The CME saw nearly $115 billion traded in one single day last week.

China’s copper supply

Despite the global scramble, China, the world’s largest copper buyer, had ample supplies. This suggests that while some markets face shortages, the global supply is not exhausted. Total global exchange inventory reached 491,000 mt at the end of Q2, the highest since 2021.

China’s import and production

Refined copper imports increased from 1.65 million tons in H1 2023 to 2.07 million in H2 2023. Imports for the first four months of 2024 were 1.25 million tons, up 17% year-on-year. Copper concentrate imports rose by 7% to 9.34 million tons in January-April. Domestic refined copper production increased by 9% in April after an 8% rise in Q1 2024.

Import premium collapse

The Yangshan premium, an indicator of China’s copper import demand, dropped to minus $5, its first negative since 2013. This suggests a reduced appetite for spot imports, potentially allowing more metal to be rerouted to U.S. ports.

Market speculation and investment

The copper rally has been driven by fund buyers and short position holders covering their trades. Investment in CME and LME contracts has surged, with money managers holding near 6-year-high long positions.

Market outlook

The current price disconnect between CME and LME could stabilize if traders manage to restock CME warehouses. However, the larger concern is whether prices can sustain if China, the largest physical consumer, curtails its buying.

Copper market

The copper market remains tight. After peaking at $5.20 last week, the July Comex price settled lower on Tuesday at $4.8550/lb, while September settled lower at $4.8545/lb in a backwardation, trimming some of last week’s gains. The September arb was at 154/mt with Comex over, raising concerns about a potential market downturn.

As there was significant overselling in the copper scrap market last week. Sellers are now scrambling to secure scrap to fulfill their already sold loads. As the copper prices slightly down this week, buyers will have the advantage. That is, if they can locate the scrap in this physical drought.

Now for the aluminum market

Switching over to the aluminum market, it has been relatively stable. This week, it continues the previously anticipated slight surplus. This shift from a deficit to surplus is reflected in LME warehouse supply, demonstrating better supply management and consistent demand.

Or, does it just mean the big trading houses that hoard the physical, flooded the market to bring the prices down?

Speculators are always quick to react to these types of floods. This results in more subdued base pricing for the scrap market. Which in turn does help the buyers to secure the scrap against their overselling while taking advantage of the rally in prices.

One must also note that the MWP went down 5 points Tuesday to $0.1995. This will in turn effect scrap prices come Wednesday morning.

Due to the holiday, the list of spreads will follow later.