The Markets Why copper is hitting record highs
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May 24, 2024 Exploring the recent surge in copper prices to record highs and the factors behind it such as arbitrage trading and high demand from electrification needs. Analyzing the future outlook for copper prices and the evolving demand dynamics driven by electrification and global IP. Touching on supply challenges faced by mines and the importance of monitoring China's weekly inventory data for price stability.
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Arbitrage Unwind Pushed Copper To Records
- Copper's recent record rally was driven by a concentrated arbitrage unwind between the COMEX and LME markets.
- Short COMEX/long LME positions stopped out, triggering momentum buying that pushed prices to all-time highs.
Supply Lags While Electrification Boosts Demand
- Long-term copper tightness stems from underinvestment in mine supply and surging electrification demand.
- New mines take ~10 years to build and EVs use ~3x more copper than ICE vehicles, plus grid and charging infrastructure add material demand.
Chinese Destocking Can Pause The Rally
- The rapid price rise likely caused near-term demand destruction in China as consumers destock and draw down factory raw materials.
- China accounts for ~50% of global copper, so Chinese price sensitivity can pause the rally until buying resumes.