ROI-Quantum copper steals the show at LME Week: Andy Home
The guest of honour at the London Metal Exchange (LME) Week was Doctor Copper, who spent last week defying the laws of physics, or at least London transport, by managing to be at every seminar, cocktail party and private meeting. Maybe there were two of them at the annual gathering. Was Doctor Copper's US double in attendance? After all, there are two very distinct copper markets right now.
Perhaps Doctor Copper was also using an AI-generated hologram, given the market's fortunes seem increasingly tied to the massive global investment in next-generation data centres. Despite copper being the hot topic of just about every conversation last week, no one seems any the wiser as to where the red metal, currently holding near record highs above $14,000 per metric ton, is headed.
This is because copper, ever the bellwether of global manufacturing, encapsulates the new metallic order, one in which demand, to quote Saad Rahim, chief economist at trade house Trafigura, is "everything, everywhere all at once," but supply is fragmented by government policy. QUANTUM COPPER
Copper remains the bull pick of the LME metals pack thanks to a compelling narrative of stellar demand prospects and structurally challenged supply. Around three-quarters of those attending the LME Seminar on Monday picked it as the top performer over the next 12 months, although the share dropped to around half when the LME remembered it also trades tin and included the soldering metal in the follow-up poll.
But is the copper market currently oversupplied or undersupplied? The answer is both, depending on where you are. At a global level, there is no shortage. The International Copper Study Group now expects a global supply surplus of 104,000 metric tons this year and a larger one of 368,000 tons next year.
Global exchange inventory is over 1.2 million tons, double year-ago levels. But all the metal is sitting in the US thanks to the continued uncertainty as to whether President Donald Trump will impose import tariffs.
Everyone else is short of metal, particularly China, where Shanghai Futures Exchange inventory amounts to just 54,400 tons and the closely watched Yangshan import premium
The global copper market has fractured, and so too has pricing. "The reality is that one price fits all isn't effective," according to Jin Hennig, global head of metals at CME Group, which is rapidly listing new storage capacity to handle the flood of metal washing up in the US. Copper has truly entered a quantum state, where reality depends on where you are observing the market.
POLICY RULES, OK? It's not just copper that is increasingly beholden to government policy.
Aluminium's regional fragmentation, manifest in wildly divergent physical premiums, is also down to Trump's 50% import tariffs. Might Canada, traditionally the largest supplier of metal to the US market, get a tariff discount?
The mood music between the White House and the Canadian government doesn't hold much promise, but according to Jorge Vazquez, founder of Harbor Aluminum, the chances of a tariff reset on Canadian metal are as high as 75%. If it were to happen, US premiums would collapse and European premiums could almost double to over $1,000 per ton over the LME cash price, Vazquez told the LME Seminar.
Meanwhile, nickel's short-term price prospects are totally dependent on what happens next in Indonesia, which over the last decade has grown to become the world's dominant producer. "The outlook now depends less on the scale of announced capacity and more on whether Indonesian policy continues to limit ore availability and prevents a return to persistent oversupply," according to Nikhil Shah, head of nickel analysis at research house CRU.
Want to make sense of the cobalt market? You need to be tracking government policy in the Democratic Republic of Congo, the world's largest supplier of the battery metal. Those export controls are propping up the price but at the cost of a massive accumulation of in-country stocks, described by CRU's Thomas Matthews as "a Pandora's box" of uncertainty.
As metals become ever more strategic, government policy becomes ever more embedded in traditional supply-demand analysis. Which is why everyone last week was talking about Doctor Copper. Or should that be Doctors Copper?
(The opinions expressed here are those of Andy Home, a columnist for Reuters.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn, and X.
And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week. (Writing by Andy Home; Editing by Marguerita Choy)
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