Copper Market Crunch Brews as US and China Compete for Metal

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(Bloomberg) — The copper market is tightening fast, with a surge in shipments to the US and rising orders in China setting the stage for a rally that could take global benchmark prices to all-time highs. 

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Futures in London this week pushed past $14,000 a ton, a ceiling that had only been breached on a handful of days this year, and many traders see prices soon surging past the record $14,500-plus level reached briefly during a bout of speculative buying in China at the end of January. 

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This time around, the upswing has more to do with trade dislocations caused by the gravitational pull of the world’s two largest economies. While an unprecedented hoarding of copper on US shores has sped up in anticipation of a tariff decision, traders have been stepping up shipments to China to alleviate tightness there. 

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The flows to China come on top of an arbitrage trade that’s encouraging cargoes to the US and drove futures on New York’s Comex to a record on Wednesday. That has been going on since last year but has accelerated to the fastest pace in at least 12 years as traders await a White House decision on whether to extend duties on semi-finished copper products to raw metal. 

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There’s been no indication when or whether US President Donald Trump plans to announce a decision on tariffs, which have been a core policy tool in his effort to shore up industrial supply chains. The president will be holding a meeting with mining executives on Friday in Washington, in a bid to showcase efforts to help spur critical minerals development and processing, with plans to unveil a handful of a deals and memoranda of understanding.

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Meanwhile, almost every day over the past two weeks, batches of 4,000 to 6,000 tons of copper have been removed from the London Metal Exchange’s network of warehouses, quickening a steady decline that has shrunk the stockpiles backing the world’s most liquid copper contracts by more than 40% since May. 

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A lot of that metal, particularly from facilities in Taiwan and South Korea, has been making its way to China, according to traders, warehouse operators and fabricators familiar with the flows. Outflows have also been seen in LME warehouses in the US as traders have taken advantage of higher Comex prices.

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Mercuria Energy Group, Trafigura Group, Vitol Group and Hartree Partners LP have all been withdrawing copper from LME warehouses in recent weeks, according to people familiar with the matter, who asked not to be named discussing private information. 

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Representatives from Mercuria, Trafigura, Vitol and Hartree declined to comment.

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The rush is because smelters in China — which is at the same time the world’s top copper producer and consumer — are producing less due to tight feedstock supplies, and customers are having to rely more on imports while Shanghai Futures Exchange inventories are also dwindling.