Copper prices steadied on Tuesday after declining towards $14,000 a ton, as new deliveries of stockpiles to exchange-tracked warehouses signaled an easing of a supply squeeze. Futures on the London Metal Exchange (LME) were little changed, having previously reached their lowest close in four weeks. This follows a sharp drop from record highs last week, which occurred when traders diverted supplies to the US in anticipation of tariffs on refined metal, leading to shortages elsewhere.
The LME copper market had experienced a severe squeeze in August as stockpiles dwindled, driving prices to new record highs amid fears of global supply depletion due to continued shipments to the US. However, the anticipated US tariffs failed to materialize, leading to a significant delivery of 8,425 tons of copper to LME warehouses on Monday, the largest inflow in almost four weeks. This influx caused three-month futures to trade at a premium of $86.75 a ton over immediate delivery contracts, a market structure known as contango that indicates ample supply, a reversal from August's backwardation that signaled tight supply.
Alongside supply dynamics, copper and other industrial metals are also being influenced by broader macroeconomic factors. On Tuesday, China, the world's largest metals consumer, reported better-than-expected industrial output growth in August, though consumer spending and investment remained weak, complicating policymakers' stimulus decisions. Additionally, the Federal Reserve's upcoming meeting, where an interest rate hike is anticipated, is weighing on non-yielding assets like commodities. Higher interest rates typically act as a headwind for industrial metals by increasing borrowing costs for manufacturers and consumers.
On Monday, copper on the LME declined 1% to $14,077 a ton, with zinc down 1.5% and aluminum slightly higher. By Tuesday, copper edged up 0.1% to trade at $14,014.50 a ton on the LME at 11:28 a.m. local time. The narrowing gap between global benchmark prices in London and New York's Comex has reduced incentives for traders to ship metal to the US, further alleviating concerns about outflows from the LME. Analysts from Sucden Financial Ltd. suggest that with reduced speculative length and easing prompt tightness, copper is likely to remain volatile around current levels until stronger demand emerges or new catalysts provide clearer direction.
