Copper’s wild ride continues

The price of copper futures reached $5.16 per pound in the pre-opening hours of the COMEX on Wednesday. In after-hours trading the same evening, copper on the same contract was down to $4.80 per pound, demonstrating the type of volatility that has copper recyclers and traders on edge.

Copper’s price volatility this spring has scrap metal processors adjusting their scale prices on an ongoing basis in an effort to protect their margins when later selling their red metal grades.

The fluctuating price leaves long-distance copper and brass scrap buyers and sellers particularly vulnerable, giving advocates of hedging the opportunity to point out the technique is critical in the current climate.

One cross-border metals trader tells Recycling Today most buyers are committed to hedging, though one of the trader’s Asia-based customers locked in a price (for numerous loads) before the Wednesday plunge on the belief that copper’s price would keep rising this spring and summer. That buyer likely is now eyeing terminal prices with considerable nervousness.

Such optimism in the copper market is not hard to find and has been bolstered in part by a forecast undertaken by New York-based investment bank Goldman Sachs.

In late March, Goldman Sachs analysts raised their year-end forecast for copper’s price on the London Metal Exchange (LME) to $12,000 per metric ton, or $5.44 per pound. This Monday, LME copper’s cash settlement price reached $10,857 per metric ton, or $4.92 per pound, appearing to be on track to head toward the optimistic forecast.

That same forecast sees LME copper vaulting as high as $6.75 per pound in 2025. The bank has pointed to market fundamentals when making its forecast, including a global supply gap it says could reach 450,000 metric tons by the end of this year.

In the interim, however, questions about the role of financial speculation in the copper market have grown in volume. Traders need only look back two years to recall the role short selling and counter short squeezes played in thoroughly disrupting the LME nickel market.

Last week, a Reuters report went beyond saying such speculation was possible and identified companies, including Singapore-based Trafigura and Switzerland-based IXM, as among those involved in a high-stakes short-selling jousting competition.

Trying to determine how much the price of copper reflects the metal’s current and forecasted supply and demand fundamentals and how much is attributable to financial speculation has been a leading topic of discussion for commodity market analysts.

New York-based red metals analyst John Gross, in his May 17 edition of The Copper Journal Weekly Report, casts his vote with speculation as the leading cause of the spring 2024 price surge.

“To our way of thinking, the volatility in copper and other metals is the result of massive speculation, whereby buying begets buying until it simply runs out of steam,” Gross writes. “We’ve been here many times before, and the story always ends in tears.”

In a May 20 report, Andy Home, a veteran commodities reporter for Reuters, says the speculation involving Trafigura and IMX “has added fuel to a rally that has driven the copper price up by 27 percent since January and reinforced a bull narrative of a market caught between constrained supply and green demand boom.”

Beyond the U.S. and London terminal markets and affiliated warehouses, however, Home questions whether the world genuinely faces a copper shortage this year or next.

“Not everyone is short of copper,” he writes. “China, the world’s largest buyer, has plenty of the stuff.” He says that circumstance is “a useful reminder the world hasn’t run out of copper just yet.”

At the end of this March, Home says, warehouses tied to the world’s trading exchanges (COMEX, the LME and the Shanghai Futures Exchange, or SHFE) held more than 490,000 metric tons of copper, which Home says is “the highest monthly level since August 2021.”

Much of that, he notes, is in the hands of SHFE participants.

“Assuming traders can shift copper to CME warehouses and rebuild depleted stocks,” that circumstance would “leave [a] far larger disconnect between price and supply chain reality," Home says.