of Copper Monthly Metals Index (MMI) The overall trend has been flat, with a slight decline of 0.65% from December to January. Meanwhile, copper prices continue to react to new US leadership and potential changes in trade policy.
Traders bet on rising US copper prices
Ahead of President Trump's inauguration, Comex copper prices have begun to break out of a flat range. By mid-January, copper prices had hit their highest since early November. This is likely due to traders pricing in the impact of tariffs that could impact the copper market. Conversely, copper prices on the LME saw only modest increases, resulting in at least a short-term divergence between the two exchanges.
Since Comex and LME prices typically move in sync with each other, the opportunity for them to diverge becomes very interesting. Since 2019, the two price points have boasted a 99.76% correlation, with Comex prices holding an average premium of $19 over LME prices. As of January 14, that premium had risen to $402. It remains unclear whether this premium will be maintained over the next few years or whether the unusually high spreads will recede as they have in the past.
The last time there was a significant divergence was in the second quarter of 2024
Previous disagreements turned out to be temporary. This included the Comex short squeeze in late May that triggered the end of the Q2 2024 rally across the base metals category. During this event, the difference between LME and Comex copper prices rose to nearly $688/tonne, with Comex prices hitting a new high of $11,257/tonne.
However, spreads quickly receded, in part due to trade flows being directed toward the U.S. market. Comex copper contracts enjoy comparable market participation rates to LMEs, but inventory levels make them far more illiquid. As a result, spikes are more likely to occur, especially when stocks are depleted.
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The October port strike also widened the gap between Comex and LME copper prices, albeit to a much smaller extent. Comex prices rose even more sharply ahead of the three-day strike, with the spread reaching $292 before brokers reached an agreement.
Discrepancy between copper and aluminum prices
The aluminum market, while potentially vulnerable to future tariffs, has behaved differently than the copper market. Indeed, the LME and Comex aluminum contracts show no signs of splitting, with the spread between the two price bands remaining narrow as of early January. Since 2022, Comex and LME Aluminum prices have had a strong correlation of 99.25%.
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So far, the threat of tariffs in the U.S. aluminum market has been primarily signaled through the Midwest aluminum premium. Although some distributors described the market as flat throughout the fourth quarter, premium spot futures and three-month futures have both increased since late October.
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Analysts and buyers continue to monitor tariff policy
Volatility in copper and aluminum prices remains a risk as markets await more concrete plans on what products and countries will be on the wrong end of new trade barriers. . This could cause recent price gains to rise further or fall sharply if reality does not match traders' expectations.
Some of the tariffs proposed by President Trump are likely being used as a negotiating tactic, and even if other concessions are made, the tariffs may not be applied to their full extent or at all. meanwhile, report There are indications that the Trump administration is currently considering a more gradual implementation process for tariffs that would soften market reaction. What will the copper price be in 2025? read MetalMiner's New Year Outlook and Contract Strategy.
Copper prices fall as US dollar strengthens
The US dollar index remains strong, which is keeping commodity prices in check. In fact, by January 15, the dollar had surpassed $109, its highest level since November 2022. Meanwhile, strong U.S. economic data cast doubt on whether there will be another rate cut in 2025. As a result, market expectations are at odds with the Fed's plans, and rate cuts are likely to continue, albeit at a slower pace than in the second half of 2024.
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Christopher Waller of the Federal Reserve said Markets believe that if inflation data turns out to be positive, further interest rate cuts could be made as early as the first half of the year. “The inflation data we got yesterday was very good,” Waller said in an interview with CNBC. Although the market remains uncertain, further rate cuts could put pressure on the US dollar index and halt its current upward trend. A decline in DXY will put downward pressure on metal prices such as copper.
nicole bastin
