Copper prices are experiencing a resurgence, driven primarily by renewed demand from Chinese buyers, despite a recent interest rate hike by the US Federal Reserve. Benchmark copper on the London Metal Exchange (LME) rose 1.2% to $14,408 a metric ton in official trading, recovering after a 4% dip since its record high of $14,875 a ton on September 10. The metal, crucial for the energy and construction sectors, saw an increase in LME copper closing at $14,464/mt, up 1.50% overnight, and the most-traded SHFE copper 2610 contract closed at 109,650 yuan/mt, up 1.06%.
Key indicators point to strong physical demand in China, the world's largest copper consumer. The Yangshan copper premium, a critical gauge of Chinese demand for imported copper, climbed to $121 a ton on Thursday, marking its highest level in nearly four years. This follows a previous high of $118 a ton on Wednesday, which was the highest since October 2022. Additionally, domestic physical market premiums, paid above prices traded on the Shanghai Futures Exchange, rose to 645 yuan a ton on Wednesday, also reaching their highest level since December 2023. Marex senior base metals strategist Alastair Munro noted that while Chinese buyers have returned, the volumes are not yet "massive."
The improved demand outlook from China has largely countered the impact of the US Fed's decision to raise interest rates and signal further hikes, which typically strengthens the dollar and makes dollar-denominated commodities more expensive. The Fed's unanimous decision effectively acknowledged the Trump administration's failure to contain inflation, with most policymakers expecting at least one more 25-basis-point rate hike this year. Despite this, the softening dollar later in the session, coupled with declining oil prices, helped copper extend its gains. Chinese warehouse stocks are also at their lowest since January 2024, standing at 54,780 tons, further indicating robust demand and tighter supply.
The LME warehouse inventories have seen declines since February of last year, partly due to copper flowing to the US after President Trump's discussions on imposing tariffs on imported copper. While the tightness in the LME system has eased and spreads are moving into contango, this appears to be more sentiment-driven than an actual increase in available inventory, with uncertainty surrounding US tariff policies persisting. The premium of COMEX copper against LME prices has fallen sharply, and inflows to COMEX warehouses have slowed amidst reports that the White House is undecided on refined copper tariffs due to concerns about potential manufacturing cost increases.
