Copper Prices Drop After Unusual Trading Week
(Bloomberg) — Copper prices dropped from a peak, wrapping up a hectic week for the metal characterized by intense trading, significant gains, and a delay at the London Metal Exchange (LME).
The LME, the largest metals exchange globally, opened at 10 a.m. Hong Kong time on Friday after identifying a potential technical issue during standard pre-trade checks. This prompted the exchange to delay trading for precautionary reasons. As the market opened, participants in Asia were on edge, speculating who might be facing losses after Thursday’s dramatic price movements.
Following the delayed start, three-month futures prices dropped nearly 4% to just under $13,000 a tonne after reaching over $14,500 the day before, fueled by an unexpected surge in buying from speculative investors in China. As the weekend approached, mainland buyers withdrew, other commodities, including gold, also saw declines, and the U.S. dollar strengthened.
Copper has been in the spotlight lately, driven by optimism for demand related to the energy transition and a steadily weakening U.S. dollar, which recently hit a four-year low. There’s also been a frenzy of interest in physical assets, similar to what precious metals like gold experienced earlier this year. Nevertheless, banks such as Citigroup have cautioned that current manufacturing demand doesn’t support the recent increase in prices for industrial metals.
“Many traders are feeling that the current market dynamics have changed their usual trading strategies,” said Zhou Zhenting, a trader at KS Commodities. “Those focused on traditional non-ferrous trading are now looking into gold, AI, and geopolitical factors.”
The surge in copper and other base metals led the LMEX index to hit an all-time high on Thursday, surpassing the mark set in 2022. Copper, vital for wiring and battery production, has faced scrutiny due to concerns about mine operations, possible U.S. import tariffs, and the demand outlook related to global electrification efforts.
Analysts from Citigroup indicated that the copper market is likely to “physically push back” against rising prices, pointing to potential increases in scrap supply and a risk of what’s termed demand destruction. They’ve kept their average price forecast for this year at $13,000 per tonne.
Some signs, however, imply that the situation might not be as precarious in the near term. The difference between spot copper prices and three-month futures is in contango, sitting at over $90 per tonne, reflecting a bearish outlook.
On Friday, the decline in price was attributed to profit-taking coupled with a strengthening U.S. dollar, especially amid speculations regarding a potential nomination for the next Federal Reserve chairman. As the U.S. dollar increases in value, raw materials generally become more expensive.
By 10:21 a.m. in London, copper had fallen 2.6% to $13,257 a tonne, bringing this month’s total gains down to around 6%. In January, tin has emerged as the top performer on the LME, boasting a rise of over 25% this year.
“There seems to be too much uniformity in market expectations right now,” noted Jerry Zhang, a trader at Ningbo Meishan Bonded Port Hongyi Investment Management Partnership Co., Ltd. “The volatility remains high, and we’re eager to manage risk and refrain from excessive involvement.”
Previous trading delays on the LME haven’t been as impactful as other recent market interruptions. For instance, a significant data center failure forced CME Group to pause trading across various sectors for more than ten hours in December.
However, since 2022, ensuring consistent operations has been a core priority for the LME, particularly after some transactions were declared invalid due to the nickel market crisis stemming from a substantial short squeeze. This incident led to a review of industry regulations.
A note released by Citigroup before trading resumed on Friday highlighted that while copper prices could rise further shortly, true underlying demand would remain challenging.
They mentioned, “In this climate, it’s complicated to navigate the supply and demand dynamics. Just like with gold and silver, predicting how high prices will climb as investment capital flows in is difficult.” Still, they forecast an increase in rebound activity in the cash market.
