Copper Marches Toward Record Highs

Copper futures climbed to around $6.7 per pound on Tuesday, nearing fresh record highs as expectations of new US import tariffs on the metal continued to encourage traders to redirect shipments toward US warehouses, tightening supplies elsewhere. The persistent premium on copper futures traded on New York’s Comex continued to create arbitrage opportunities, even as the White House has yet to finalize the proposed levies. The tariff-driven trade triggered a major squeeze and backwardation on the LME last month, although new deliveries have helped ease some of the immediate supply pressure. Major copper-producing countries in South America have also faced operational challenges this year, contributing to weaker output and exports. Meanwhile, supply has struggled to keep pace with rising demand from data centers, renewable energy projects and power grids.

Copper futures in the US were above $6.6 per pound on Monday, hovering close to the record-high of $6.7 that was tested late August on mounting concerns to supply. The escalation of strikes between the US and Iran prolonged the suspension of usual commercial vessel flows through the Strait of Hormuz. This worsened ongoing shortages of sulfuric acid for refiners in key South American hubs, as supply pressures from GCC countries drove China to halt their exports. This was magnified by lingering concerns that the US presidential administration is could impose tariffs on unprocessed copper goods triggered a surge in buying to front-load deliveries. Consequently, backwardation curves steepened both in major Western copper exchanges. Mined supply has also faltered with reports from Codelco and Freeport-McMoRan posting double digit declines in production, shortly after the International Copper Study Group pointed to a 1.1% decline in global production in the first half of the year.

Copper futures slipped to around $6.55 per pound on Monday, ending a two-day rally as stronger-than-expected US jobs data strengthened expectations for a Federal Reserve rate hike this month, weighing on the demand outlook for industrial metals. Investors also assessed rising inflation risks after oil prices extended their gains as the US and Iran exchanged strikes on ships over the weekend. Still, copper remained near record highs amid persistent concerns over supply. Analysts pointed to a recent export ban in Congo, weaker production from major producers Chile and Peru, and disruptions associated with El Nino. Data showed top producer Chile recorded its weakest second-quarter output in at least 19 years. The country also lowered its full-year production forecast for a second consecutive quarter and now expects output to decline 2.6%. Elsewhere, uncertainty over tariffs continues to encourage copper shipments into the US, pushing Comex inventories to record levels.