(Bloomberg) — Copper prices experienced their largest increase in over 16 years, driven by a surge of buying from Chinese investors, resulting in one of the most significant market movements in history.
Prices climbed as much as 11%, exceeding $14,500 per tonne for the very first time, before sharply declining on Thursday afternoon.
The commodity, essential for nearly all electrical applications, has risen approximately 21% since early December, bolstering bullish sentiments among copper advocates who have been forecasting price hikes for some time.
Mark Thompson, a mining executive with three decades of experience in the copper market, remarked, “You wait a lifetime for a market like this. We are just one supply interruption away from $20,000.”
Chinese investors are keenly buying into metals, fueled by a vigorous momentum that has pushed prices of various commodities, like tin and silver, to unprecedented heights. The initial copper rally coincided with a period dominated by Chinese traders, causing prices on the London Metal Exchange to soar over 5% in under an hour after 2:30 a.m. London time.
This week’s metal prices soared following comments from U.S. President Donald Trump regarding a weaker currency, pushing the benchmark U.S. dollar to its lowest level in over four years. This decline enhances the appeal of commodities, all while encouraging Chinese investors to prioritize them over U.S. Treasuries. Consequently, the LMEX index of major base metals on the London exchange hit record highs.
Tom Price, a senior commodities analyst at Panmure Liberum, noted, “The dollar remains under pressure, partly due to capital flight from China and other nations. Savvy investors are simply taking the dollar home because they’re concerned about its weakening.”
Prices surged more than $1,400 per tonne but then saw a drop of nearly $1,000 within a brief span as the U.S. market opened amidst a general risk-averse sentiment.
Copper has traditionally attracted investors as they believe that the energy transition and growth in data centers will elevate demand. However, the latest price surge is occurring despite signs of weak demand in China, which accounts for about half of global copper consumption, along with a rising contango in the London market — an indication that supply is abundant.
A surge of speculative buying has also led to heightened trading volumes on the Shanghai Futures Exchange, where January has already set records. Copper, in particular, saw its second-highest daily trading volume on Thursday.
In response to the rally, SHFE has introduced measures to mitigate the rise by increasing margin requirements on select contracts and imposing trading limits on specific customers in the tin and silver markets. They reported that an unidentified client breached rules related to strange trading patterns, urging investors to “enhance risk awareness, invest sensibly, and work together to ensure stable market operations.”
Recent weeks have been transformative for commodities, driven by a weaker U.S. dollar, heightened demand for tangible assets, and escalating geopolitical tensions amidst a more assertive foreign policy from the Trump administration. Speculation surrounding the next potential Federal Reserve chair being more dovish than Jerome Powell has also lent support to the rally.
Eric Liu, deputy general manager at ASK Resources, commented, “Commodities are experiencing a sequential rise. Copper has been stabilizing around $13,000, indicating that investments have been accumulating for a while.”
On the London Metal Exchange, copper closed higher, marking the biggest intraday movement since 2009 when China unveiled its extensive economic stimulus to address the Great Financial Crisis. SHFE futures rose by 5.8% to 109,110 yuan, hitting as high as 114,000 yuan ($16,400) per tonne during overnight trading before seeing some price adjustments. Other metals also enjoyed significant early gains on the LME, although there was a mixed performance in the afternoon with aluminum decreasing and zinc gaining.
Federal Reserve Chairman Jerome Powell, in a recent address, noted a “clear improvement” in the U.S. economic outlook while maintaining current borrowing costs. His term will end in June, after which there may be opportunities for Trump to intensify efforts to reduce interest rates.
Qi Kai, the chief investment officer at Shanghai Cosine Capital Management Partnership, expressed that expectations for copper price increases remain steady as long as the U.S. continues reducing interest rates. “As long as the U.S. advances in AI, chips, and power construction, predicting how much prices will increase is murky,” he added.
Investors are particularly drawn to metals necessary for key growth sectors. Tesla, for instance, plans to invest $20 billion this year to redirect resources toward robotics and AI, which bodes well for copper, aluminum, and tin.
Though the overall gains are substantial, some are cautioning that the pace of copper’s rise might be outstripping actual demand. Trina Chen, co-head of China equities at Goldman Sachs, warned on Bloomberg TV that a “technical correction” may happen as Chinese end-users hesitate at the steep prices.
