I have been writing about the case for buying copper for years and it’s borne fruit in the last year in a big way. Physical copper is staring into a yawning supply gap and it will take a decade of higher investment (and higher prices to fix).
Those prices are coming quickly with copper rising by as much as 10% today before fading.
copper daily
As big of a bull as I am on copper, there are some warning signs here.
For one, copper hasn’t really run into the supply gap yet; it’s just starting to open up. It’s been moved along by supply shortfalls, particularly after the landslide at the Grasberg mine in Indonesia. Some of that supply will return this year and it’s not until 2027 when things really start to get tight.
I think copper is getting pulled along for the ride by silver and gold. That can continue so long as the mania lasts but this isn’t a fundamentally driven squeeze.
Ole Hansen, head of commodity strategy at Saxo Bank makes a few good points:
1) The spot price is cheaper than delivery in 3 months and the contango is at an 11-month high. It would be the opposite if there was a scramble for copper now.
2) The physical amount of copper stored in London Metal Exchange warehouses is at a multi-year high in a reversal from what we saw last year.
3) The Yangshan premium over LME trades at an 18-month low. n 18-month low suggests that Chinese factories and builders aren’t desperate for metal, despite the high global price.
In short, this looks very speculative and that makes it flimsy. I’d expect copper producers to be hedging into this and locking in some higher prices. The curve shows +$6 prices through year end, which is a windfall in an industry that’s been pining for even $4 copper for years.
