Copper Hits Record Above $11,000 on Bets That Shortage Looms

Copper prices soared to a record high, surpassing $11,000 per ton, driven by speculative investments amid anticipated supply shortages. The surge, fueled by tight copper ore supply and growing demand in sectors like EVs and renewable energy, has seen prices climb significantly, with a notable rally in April intensifying last week due to a short squeeze in New York.

Despite the bullish market, physical trade participants caution that the high prices may not fully reflect current tepid demand, especially in China where copper inventory remains high. Meanwhile, disruptions at copper mines and a short squeeze in the Comex market have tightened global supplies, potentially hastening a production shortfall.

The surge in copper prices to record levels above $11,000 a ton can be attributed to several key factors:

1. Anticipation of deepening supply shortages: Financial investors have been piling into the market in anticipation of a worsening supply shortage, driven by tight supply of copper ore and concerns over output cuts by smelters4.

2. Investment inflows: Banks, miners, and investment funds have been promoting copper's bright long-term prospects for months, leading to a flood of investment into the market. This has increased pressure on bearish traders who have taken a more cautious stance due to weak spot demand, particularly in China.

3. Growing demand in green industries: Investors are betting that copper usage will surge in fast-growing sectors such as electric vehicles (EVs), renewable energy, and artificial intelligence (AI), offsetting the drag from traditional sectors like construction.

4. Short squeeze on the New York futures market: A short squeeze on the New York futures market in April triggered a global rush to secure copper, causing prices to soar1.

5. Optimism about US Federal Reserve interest rate cuts: Both copper and gold have rallied to record highs, with support from optimism that the US Federal Reserve will start cutting interest rates this year.

6. Setbacks at major copper mines: A series of setbacks at major copper mines have fueled fears that a much-anticipated production shortfall will arrive earlier than expected, further tightening supplies.

7. Rising Chinese exports: The disconnect between the rising copper prices in western exchanges and the relatively tepid demand in China has led to Chinese smelters exporting more copper, as prices in New York and London have outpaced those in the domestic market4.

These factors have combined to create a perfect storm for copper prices, driving them to record levels and fueling concerns over a potential supply crunch in the coming years.