LONDON- Copper’s lightning rally to record highs may not be sustainable in the coming weeks, with action concentrated on the shipment of material to cover exposed short positions in the US Comex futures market rather than tepid demand in top consumer China.
Prices on the CME Group’s Comex hit a record last week, while benchmark copper on the London Metal Exchange (LME) rocketed on Monday to an all-time peak of $11,104.50 a metric ton, having surged 28 percent so far this year.
Analysts say copper’s long-term fundamentals are strong, with a bullish outlook attached to firm demand in coming years for applications including the global clean energy transition and greater use of artificial intelligence (AI).
That is set against constrained supply, prompting a race among miners for high quality projects.
The current run higher appears to be on shaky ground, motivated by heavy speculative activity and a dash to cover large short positions – which can be bets on lower prices, or producers hedging their output – taken by traders.
At least 100,000 metric tons of copper are en route to the US CME exchange, two sources with direct knowledge told Reuters on Monday, which will go a good way to allow parties to deliver against bearish positions and take the heat out of the market.
“At the moment, it’s pure speculative rather than real demand,” said Robert Montefusco at broker Sucden Financial.
“It all depends on whether that demand becomes real, because once the specs are out, it’ll just fall away.”
On Comex, there was a total net short position of 7,525 contracts or 85,334 tons, data showed on Friday.
There was a big difference however between the net long position of speculators at 72,785 contracts (825,382 tons) and the net short position by producers of 91,502 contracts (1.04 million tons).
Sources have told Reuters that commodity traders including Trafigura and IXM, as well as Chinese copper producers, are among those caught in a short squeeze on Comex.
Many of those shorts have arranged for copper shipments to the US from producers in Chile and Peru, re-directed vessels that had been headed to China on long-term contracts, and some copper withdrawn from LME warehouses.
More than 20,000 tons from Chile are expected to arrive in the US by the end of May, with bigger volumes lined up to land in June and July, two producer sources said.
The transfer of copper from LME-registered warehouses to Comex however could be limited. Chinese and Russian copper, accounting for 67 percent of LME stocks, are not eligible for Comex delivery.
There are 17,250 tons of copper produced in Chile, Peru and Australia which are US duty-exempt and were in the LME system at the end of April, exchange data showed.
