[Weekly Preview] Hot Money Chasing Non-ferrous Metals: How Far Can Copper Prices Detach from Fundamentals? (AI Translation)
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文｜财新周刊 罗国平 王晶
By Caixin Weekly's Luo Guoping and Wang Jing
北京时间5月14日22时至24时，美国纽约商品交易所（COMEX）铜市（下称“美铜”）与伦敦金属交易所（LME）铜市（下称“伦铜”）的合约价格走势突然背离：美铜向上、伦铜向下。次日，美铜2407合约冲至11305美元/吨新高，与伦铜的价差达到史所罕见的水平——最高偏离约1200美元/吨。正常情况下，两市价差仅在运费上，每吨电解铜普遍相差数十美元。
Between 10 PM and midnight Beijing time on May 14, the contract prices for copper on the New York Commodity Exchange (COMEX) and the London Metal Exchange (LME) suddenly diverged: COMEX copper prices rose while LME copper prices fell. The following day, the COMEX July 2024 contract surged to a new high of $11,305 per ton, leading to an unprecedented price divergence with LME copper—peaking at about $1,200 per ton. Under normal circumstances, the price difference between the two markets generally reflects the cost of freight, typically varying by only a few tens of dollars per ton of electrolytic copper.
这一波异常行情的背后是美铜多头“逼空”——利用可交割资源不足，逼迫空头买入平仓。实际上，短短两个小时的猛力拉涨，是前期连续三个月大量资金铺垫的结果。
Behind this wave of unusual market activity is a "short squeeze" in the U.S. copper market—leveraging the shortage of deliverable resources to force short sellers to buy back and cover their positions. In fact, the sharp rally within a mere two-hour window is the result of substantial capital accumulation over the preceding three months.
不只是铜，2024年3月以来，金、银等贵金属，铝、铂、铅、锌、镍、锑、锡、钨、钼、钴等工业金属，均被市场重估而全面上涨。尤其金、银、铜价格屡创新高，锡也在4月有过逼空行情，小金属品种更是涨势凶猛。不过，市场自5月20日开始普遍回调。
Not only copper, but since March 2024, gold, silver, and other precious metals along with aluminum, platinum, lead, zinc, nickel, antimony, tin, tungsten, molybdenum, and cobalt—all industrial metals—have been revalued by the market and have surged. Especially, the prices of gold, silver, and copper have hit record highs frequently, and tin also experienced a short squeeze in April. Minor metals have seen particularly fierce increases. However, the market has generally been pulling back since May 20.
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- On May 14, 2024, COMEX copper prices surged while LME copper prices fell, culminating in an unprecedented price divergence driven by a U.S. copper market short squeeze.
- Non-ferrous metals, particularly copper, saw significant price increases since March 2024, although the market saw pullbacks starting May 20.
- Analysts attribute the metal bull market to excessive U.S. monetary issuance, the goals of carbon neutrality, new energy and AI-driven demand, and ample global liquidity.
In late May 2024, an extraordinary divergence occurred between copper prices on the New York Commodity Exchange (COMEX) and the London Metal Exchange (LME). COMEX copper prices surged to $11,305 per ton, leading to a $1,200 per ton price difference with LME copper [para. 1]. This divergence was partly due to a "short squeeze" in the U.S. copper market, a tactic where a shortage forces short sellers to buy back positions, driving prices higher [para. 2].
The unusual activity wasn't limited to copper. Starting in March 2024, prices for precious metals like gold and silver, as well as other industrial metals like aluminum and tin, also surged [para. 3]. By May 28, the RJ/CRB Commodity Index had increased to 300.23, its highest since mid-2022, reflecting a significant rise in commodity prices [para. 4].
This price surge is primarily attributed to overseas factors. He Xiao, Research Director at Monita Research, noted that traditional cyclical factors, such as resurgent local demand and industrial restocking, combined with growth factors like AI-driven demand for non-ferrous metals, contributed to these price hikes. Additionally, the anticipation of Federal Reserve rate cuts and inflation concerns played a significant role [para. 5][para. 6].
Facing similar macroeconomic dynamics, CITIC Securities' analyst Wang Jiechao predicted an ongoing 'metal bull market' possibly lasting one to two years. Key drivers include the restructuring of the global monetary system, post-pandemic inflation, supply constraints due to "carbon peaking and carbon neutrality" goals, and rising demand from new energy and AI sectors [para. 6][para. 7].
Copper, a widely used industrial metal, is seeing increased investment due to its strong financial characteristics, making it an attractive capital investment. Xiao Jing, chief analyst at SDIC Essence Futures, observed that expectations of Federal Reserve rate cuts, geopolitical tensions, and a U.S. debt crisis have driven copper into an atypical bull market [para. 8][para. 9].
The sharp rise in base metals is also influenced by financial conditions in both the U.S. and China. While the U.S. has witnessed a simultaneous bull market in stocks and bonds alongside anticipated Fed rate cuts, China has been in an interest rate cutting cycle, contributing to increased market liquidity [para. 10][para. 11].
Despite these bullish trends, there are stark contrasts in the market. While metals have seen a financial surge, actual end-user demand remains low, with high inventories indicating suppressed consumption [para. 12][para. 14]. International factors, such as global trade fluctuations and supply chain disruptions, also play a role. For instance, the U.S. copper market experienced a more noticeable price discrepancy due to domestic constraints and geopolitical issues, including the restriction of Russian copper deliveries due to sanctions [para. 19][para. 20].
Global liquidity continues to be abundant despite the Fed's previous rate hikes. Following aggressive rate increases since 2022, the U.S. still has ample liquidity, maintaining financial conditions more accommodative than historical averages. The Fed's policy adjustments, such as the slowdown in balance sheet reduction, contribute to this liquidity surplus [para. 22][para. 25].
China’s economic dynamics also support the pricing of non-ferrous metals, driven by robust export growth and industrial production recovery. Improved manufacturing PMIs in both China and the U.S. support the metal market, with China’s expansive fiscal policy further bolstering demand [para. 37][para. 38].
Overall, while the surge in metal prices is driven by capital investment and speculative actions, underlying industrial demand remains cautious, reflecting a disjoint between market speculation and actual consumption. The metal bull market is tied to both broad macroeconomic factors and specific sectoral dynamics, with future price movements dependent on variable factors such as global liquidity, fiscal policies, and geopolitical developments [para. 41][para. 50][para. 53][para. 60].
- Luoyang Molybdenum
洛阳钼业 - Luoyang Molybdenum's vice chairman and chief investment officer, Li Zhaochun, mentioned unexpected supply disruptions at various copper mines like those of Anglo American. Since late 2023, major copper miners have reduced production guidance by approximately 800,000 to 900,000 tonnes for 2024, with further cuts expected in 2025 and 2026.
- Anglo American
英美资源 - Anglo American is mentioned in the article regarding its copper production forecasts. Since late 2023, Anglo American, along with other mining companies, has lowered its production guidance for copper, contributing to a reduction in global copper supply. Specifically, their production downgrade aligns with a broader trend of lowered projections, resulting in a significant decrease of about 800,000 to 900,000 metric tons.
- First Quantum
第一量子 - First Quantum is a Canadian mining company whose copper production activities in Panama were halted by the government in December 2023 due to alleged contractual violations. The firm operates the Cobre Panama copper mine, which yields an annual output of 33.1 million tons, constituting about 1.5% of global copper production.
- Between 10 PM and midnight Beijing time on May 14, 4：
- The contract prices for copper on COMEX and LME diverged: COMEX copper prices rose while LME copper prices fell.
- By May 20, 4：
- The market generally started pulling back.
- As of May 28, 4：
- The RJ/CRB Commodity Index reached 300.23.
- May 31, 4：
- Republican presidential candidate Donald Trump led Democratic candidate and incumbent President Joe Biden by 0.9 percentage points in a RealClearPolling survey.
- March 2022：
- The Fed's balance sheet had surged to over $8.9 trillion.
- June 2022：
- The Fed commenced quantitative tightening (QT).
- November 2022：
- The ISM manufacturing PMI in the U.S. fell below 50.
- June 2023：
- U.S. real interest rates turned positive.
- November 2023：
- The growth rate of China’s U.S. dollar-denominated exports turned positive.
- March 2024：
- The ISM manufacturing PMI in the U.S. rebounded to 50.3.
- April 2024：
- Tin experienced a short squeeze.
- April 2024：
- China’s U.S. dollar-denominated exports had increased by 1.5% year on year.
- April 2024：
- China's national industrial added value above designated size increased by 6.7% year-on-year.
- By the week ending May 17, 2024：
- The Chicago Fed's National Financial Conditions Index (NFCI) fell to -0.56.
- May 2024 policy meeting：
- The Fed decided to slow the pace of balance sheet reduction starting early June.
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