Copper Prices Surge to New Heights on LME

Copper prices on the London Metal Exchange (LME) have seen a significant rally, reaching new record highs amid growing optimism about the potential easing of global trade tensions. This surge follows a period of volatility driven by supply disruptions and trade restrictions.

Factors Driving Copper's Price Rally

On the LME, three-month copper futures climbed to $11,146 per ton, surpassing previous highs set earlier in 2024. The price of copper, a key industrial raw material and a bellwether for global economic growth, has risen by over 25% year-to-date, signaling a potential for its best annual performance since 2017.

Impact of Supply and Demand

The year has been turbulent for the copper market, with disruptions at major mines in Chile, Africa, and Indonesia significantly impacting global supply. Additionally, tariff policies implemented by former US President Donald Trump led to sharp price distortions between the US market and the global benchmark set on the LME. Earlier this year, traders shipped large quantities of copper to the US to profit from price surges on the Comex exchange, anticipating government tariffs on copper. In August, Trump ultimately decided to exempt commodity-grade copper from tariffs, focusing instead on higher value-added copper products but retaining the possibility of tariffs starting in 2027. This has led to a continued flow of copper to the US, exacerbating supply pressures for buyers in other regions.

Future Market Outlook

With global mine production struggling and substantial copper inventories effectively "trapped" in the US, Morgan Stanley predicts that the global copper market will face its most severe supply shortage in over 20 years by 2026. For years, miners have struggled to keep pace with increasing copper demand, and this year has been compounded by major incidents at mines operated by companies like Freeport-McMoRan, Ivanhoe Mines, and Codelco, as well as operational breakdowns at numerous other large deposits. Earlier this week, Anglo American warned that copper production from its most important mines may be lower than expected next year, following a similar warning from Teck Resources. According to CRU Group, these production mishaps mean that global annual copper production is heading towards its first annual contraction since the COVID-19 outbreak.

Impact of Demand

The year has also been mixed for potential copper demand. Long-term optimism about the growth of copper usage in areas such as renewable energy, electric vehicles, and data centers has been offset by short-term anxieties about escalating trade wars. "Market optimism that the U.S. and China will reach a trade deal has boosted risk appetite, which has provided support for copper prices," said Craig Lang, chief analyst at CRU Group. He added that concerns about tight physical supplies in markets outside the U.S. have also supported copper prices. Copper, along with other commodities priced in U.S. dollars, has also benefited this year from a weaker dollar, which has made raw materials more attractive to overseas buyers. Later in the year, the Federal Reserve is expected to cut interest rates again, which could put pressure on the dollar.