Copper prices edged lower, with three-month futures dropping as much as 1.6% to $14,018.50 a ton, reaching its lowest point in over three weeks. This decline occurred as traders increased their bets on a US interest rate hike. The London Metal Exchange (LME) reported an 8,425-ton rise in copper inventories in its warehouse network, contributing to loosening supply conditions.
The LME copper market experienced a significant squeeze in August due to dwindling stockpiles, pushing prices to record highs. This was fueled by concerns that global supplies would be depleted as traders shipped large volumes to the US in anticipation of potential tariffs. However, the narrowing gap between London and New York's Comex benchmark prices has reduced the incentive for such shipments, alleviating fears of further LME outflows.
Key price spreads now indicate easing supply. Cash contracts are trading at a $45-a-ton discount to three-month futures, a stark contrast to August when the spread reached a $545-a-ton premium, a condition known as backwardation that signals tight supply. Broader market pressures are also impacting copper and other metals as traders anticipate the Federal Reserve will raise interest rates soon. Five out of the LME’s six main metal contracts traded lower, impacted by a strengthening dollar and a generally negative sentiment towards risk assets.
Analysts at Sucden Financial Ltd. noted that with reduced speculative length and easing prompt tightness, copper prices are likely to remain volatile around current levels. They suggest a clearer direction will emerge once stronger dip-buying returns or a new macro or fundamental catalyst emerges. Bets on rate hikes are escalating ahead of the Fed's policy meeting this week, with Friday's higher-than-expected inflation data reinforcing concerns about rising price pressures. Tighter monetary policy typically acts as a headwind for industrial metals like copper by increasing borrowing costs for manufacturers and consumers.
In August, a historic squeeze on the copper market eased after significant inflows of metal into the London Metal Exchange. Inventories on warrant in the LME’s global warehouse network jumped by over 35,000 tons, the largest increase since 2024, following a prior increase of over 20,000 tons, to which Trafigura Group was a significant contributor. Before this recent recovery, stockpiles had shrunk by approximately 75% from a mid-April high.
