Copper prices approach new highs for the year: The U.S. is frantically buying, igniting "the most emotional metal market"!

The U.S. copper grab leads to a shortage outside the U.S., with London copper prices climbing to near this year's highest level, analysts warn that a "short squeeze" may reoccur.

On Wednesday, London copper prices rose to a three-month high of nearly $10,000 per ton. A large influx of copper materials into the U.S. in recent months to avoid potential tariffs has led to the lowest copper inventory on the London Metal Exchange since 2023.

Market turmoil has impacted trading companies and smelters with hedged metal exposures, driving up prices and forcing the London Metal Exchange to intervene in the market last month by introducing rules for large position traders.

Analysts warn that the scramble for scarce supplies could trigger a "short squeeze," further pushing up prices. Sellers face immense pressure as they must deliver physical metal or incur losses on rolled-over positions.

Shortage of Non-U.S. Supply Drives Prices Soaring

Recently, a large amount of copper materials has flowed from Europe and Asia into the U.S. in response to the Trump administration's potential imposition of import tariffs on this metal, widely used in energy, technology, and transportation sectors.

Panmure Liberum analyst Tom Price stated:

The frantic transfer of metal from everywhere outside the U.S. "makes copper the most emotional metal market at the moment."

The competition for scarce supplies from Europe and Asia is intensifying, with large trading companies like Mercuria and Vitol attempting to expand their base metals businesses. As the market tightens, the London Metal Exchange changed its rules last month, imposing borrowing requirements on traders holding large positions to address the volatility caused by some buyers seeking to quickly acquire large amounts of metal amid low inventory.

The buying frenzy has led to a spot premium in the copper futures market, with spot prices last week nearly $400 per ton higher than three-month forward prices, marking the largest gap since 2021.

The so-called "overnight price spread"—the comparison of tomorrow's copper price to the day after tomorrow's copper price—jumped last week to a premium of nearly $100 per ton, the largest gap since 2021. Marex's base metals strategist Alastair Munro stated:

This has become "the true pressure indicator of the market," with some sellers now "being hurt."

This reversal poses risks to copper sellers, as expiring contracts must be settled through the delivery of physical metal or losses on rolled-over positions. Analysts at Bank of America warn that this could potentially create a so-called "short squeeze" in the market, further driving up prices.

Production Disruptions Intensify Supply Tightness

While the London Metal Exchange inventory is depleting, copper production is also facing disruptions. For instance, Ivanhoe Mines' large Kakula mine in the Democratic Republic of Congo was hit by flooding in May. Meanwhile, some large trading companies are seeking to establish base metal businesses, intensifying market competition.

According to data from the London Metal Exchange, on Wednesday, an unnamed buyer held the rights to purchase 50% to 80% of the available warehouse copper in the exchange's network, giving them the right to demand delivery of these metals Munro warned that this could exacerbate the shortage situation: "We are talking about a real deficit two years from now." Even if buyers ultimately do not demand physical metal, "these positions are real and could create tension in the market."

An earlier article from Wall Street Journal mentioned that regarding the trend of copper prices, Goldman Sachs believes that the timing of tariff implementation is a key variable, with a baseline scenario expecting a 25% tariff to be implemented in September. Goldman Sachs recommends going long on the December COMEX-LME copper arbitrage, as the market currently significantly underestimates the likelihood of a 25% or even 50% tariff