via MetalMiner.com
as a whole, Copper Monthly Metals Index (MMI) It increased by 17.36% from April to May.
The upward trend in copper prices accelerated throughout April. The bullish momentum saw prices rise nearly 14% from the closing price at the end of March. By April 29, prices had surpassed $10,000 per ton. They continued to rise through mid-May, increasing another 1.14%. Despite these recent gains, copper prices still face many risks today.
Long-term fundamentals push copper prices above $10,000 per tonne
Copper unstoppable? If you ask the copper bulls, there is nothing stopping the current uptrend. The long-term market fundamentals are: Copper prices are on the rise due to tight mine supply and lack of investment in new mines, increased demand from sectors such as renewable energy, grid investment, and war, as well as the need for AI-driven data centers. A road trip to the north.
From a long-term perspective, supply concerns remain valid. Processing and refining costs have already plummeted due to mine interruptions and closures and declining ore grades from active mines. Although rising copper prices are likely to encourage the development of new mines, it takes an average of 16 to 17 years from discovery to production. Therefore, outside of recycling, increasing the supply pipeline cannot be achieved quickly, even with appropriate investments. On the other hand, as the world becomes more electrified, demand for copper will increase. This is the main reason for the current copper supply shortage forecast, with the shortage expected to start in 2025.
LME investment fund spreads seem decisive. By early May, long positions accounted for nearly 73% of total investment fund positions. While total short positions have remained relatively stable, bets on copper prices rising have more than doubled since early January. A significant increase in long positions pushed copper prices to their highest since April 2022 by mid-May.
Meanwhile, CME prices looked even more bullish. May 14th, Copper squeeze This pushed intraday trading briefly above $11,000 per ton. Prices fell toward the close, but CME prices ended May 14 at a premium of more than $300 over LME prices.
Speculative bets are causing too much concern
Prior to the current rally, the upcoming bullish trend in copper prices was perhaps the best-kept secret in the metals market. After all, copper remains essential to the global green transition currently underway. This fact alone has many market participants ready to pull the trigger on long bets as soon as copper prices start rising.
The beginning of 2024 appears to have seen renewed interest in metals trading in general. LME trading volumes hit a record high in April, partly due to the US and UK imposing trade bans on Russian aluminum, copper and nickel. 17 million Contracts traded. For copper, the total number of LME positions increased by more than 38% from the end of 2023 to May 10th. Moreover, not only LME but also CME and SHFE have increased their participation in the market.
A new boom in trading has provided momentum to all base metal prices. These have continued to rise since the beginning of the year, regardless of current supply conditions. But waves of speculative betting come with a significant risk that demand will not keep up with expectations. In fact, this is one of the major issues plaguing copper prices today.
Long-standing demand signals remain a persistent red flag for the market’s current reality. First, the deeply entrenched contango between LME 3-month futures and spot spot prices suggests that market supply is sufficient. By May, futures premiums had hit an all-time high of $143. There was a slight pullback in the following week, but that pales in comparison to the average premium since 2012 of just over $12.
Current copper prices: Chinese demand and green energy woes
Meanwhile, China’s demand indicators also don’t live up to the current hype. China’s Yangshan copper premium fell below zero by mid-May, indicating that soaring copper prices were capping demand. Rising metal prices may also constrain demand in U.S. sectors such as offshore wind and electric vehicles, which continue to face cost and profitability challenges, and rising copper prices may It is not hard to imagine that sectors that require significant amounts of copper will find themselves in a vulnerable situation.
While the long-term bull market fundamentals remain valid, it is difficult to tell how much longer speculation can sustain the market, especially as fear of missing out on the current trend has driven prices unsustainably higher. A correction could be looming on the downside if large position holders begin to unwind these bets.
Unknowns in the copper market
Amid the current market volatility, many unknowns remain that can impact market conditions. Inflation slowed in April but remains above the Fed’s 2% target. Additionally, the Fed has not yet indicated a timetable for rate cuts, so sustained developments in inflation will likely be needed before officials change course. Rising metal prices certainly won’t help the Fed’s ambitions. Meanwhile, rising long-term interest rates will continue to support the US dollar. Demand will remain subdued as copper prices move inversely to the US dollar index.
In other news, Panama elected a new conservative president in May, promising to lift the economy out of its current doldrums. The copper market was also significantly affected by the closure of First Quantum’s Cobre Panama copper mine, which accounts for an estimated 1% of global copper supplies. Mine closures triggered by environmental protests have strained the supply of ore to copper smelters. However, the Panamanian government agreed to a new contract with First Quantum. resume Processing operations will be concentrated by early May.
Days earlier, new president Raul Mulino left the market optimistic that First Quantum could renegotiate a new contract to resume mining operations.mulino Said “The arbitration needs to be stopped so that the mining issue can be considered,” he said on a Panamanian radio show. First Quantum began arbitration proceedings in response to the mine closure, seeking $20 billion in compensation from the state. Resuming mining activity is also likely to require new contracts that are more favorable to Central American countries, but the door remains open that Cobre Panama has not yet been fully shut down and current supply concerns may help alleviate the
The biggest moves in copper prices
- India’s primary physical copper price rose the most overall, rising 14.23% to $10.40 per kilogram as of May 1.
- China copper wire prices remained bullish, rising 13.22% to $10,071 per tonne.
- U.S. copper producer prices (grades 110 and 122) rose 11.64% to $5.66 per pound.
- U.S. grade 102 copper producer prices rose 11.09% to $5.91 per pound.
- South Korean copper strip prices were the only one in the index that fell, albeit by a small margin. Prices fell slightly, down 0.23% to $10.28 per kilogram.
nicole bastin AgMetalminer.com
