Physical buyers win battle for copper market as funds retreat By Reuters

By Pratima Desai

LONDON (Reuters) – Investors fleeing the market will be sidelined for months, leaving the field open for physical players who expect demand from China and elsewhere to deteriorate in coming months and weigh on prices.

A funds-buying frenzy based on an expected shortage of copper relative to demand sparked a rally on the London Metal Exchange (LME) earlier this year, which accelerated as traders scrambled to raising prices to a record high of over $11,100 per metric. ton in May.

At the same time, commodity traders were buying on the LME to fulfill their commitments to sell copper on COMEX, part of the CME Group (NASDAQ: ).

However, copper fell nearly 20% as persistently weak production activity prompted the physical market to reassert control, with consumers suspending purchases and producers and traders delivering surplus metal to LME-registered warehouses.

“Demand updates and refined production pushed the market into a surplus earlier than expected,” said Macquarie analyst Alice Fox, who expects copper surpluses of 265,000 metric tonnes this year, 305,000 tonnes in 2025 and 436,000 in 2026.

Fox said prices could recover in the fourth quarter if stocks are low.

“However, in the absence of faster global growth to boost demand, the larger surpluses in 2025 and 2026 mean this rally is likely to be short-lived,” Fox said, adding that prices could fall back to 8,000 dollars.

BURNT FINGERS

LME copper hit a 4-1/2-month low of $8,714 a tonne in early August as fears of a US recession and concern that the Federal Reserve has kept interest rates too high exacerbated negative sentiment due to rising inventories and demand weak.

China consumes more than half of global refined copper supplies, estimated at around 26 million tonnes this year.

But much of the copper used in China is for wiring household goods that are then exported. A slump in the housing market and stagnation in China’s manufacturing sector highlight the headwinds facing copper demand.

“If you strip out exports, domestic demand from China appears to be anemic. There is no shortage of copper,” said BNP Paribas ( OTC: ) analyst David Wilson, who expects a surplus of between 150,000 and 200,000 tonnes this year.

“Product manufacturers have sold out. If you’re a producer and you’re not sure about the outlook for demand and exports, you’re not going to restock aggressively.”

Data from the International Copper Study Group (ICSG) showed a copper market surplus of 416,000 tonnes between January and May, hinting at large deficits this year.

Copper stocks in registered warehouses at the LME, a market of last resort, rose to five-year highs above 300,000 tonnes, up about 200% since mid-May.

Most of the metal was delivered to LME warehouses in Korea and Taiwan. It came from Chinese producers who have been unable to sell their goods domestically and are looking to take advantage of LME prices above those on the Shanghai Futures Exchange.

Copper stocks in the South Korean cities of Busan and Gwangyang and Taiwan’s Kaohsiung, totaling 239,100 tonnes, now account for 78% of total LME system copper stocks, compared with 31,925 tonnes and 31% on 16 May.

The threat of a prolonged strike at BHP’s Escondida copper mine in Chile, which produced almost 5% of the world’s copper in 2023, raised concerns last week about a supply squeeze, but a deal on Sunday allayed fears.

In the long term, however, deficits are projected as structural changes in copper consumption from new AI-related technologies and the energy transition accelerate.

“We still see copper as the backbone for decarbonization,” Glencore (OTC: ) CEO Gary Nagle said at a recent briefing. “Spending on AI data centers, renewable infrastructure is very copper-hungry, very intensive.”