The harmony of copper prices between COMEX and LME copper has not been this unbalanced for a long time. The reason is different inventories in the U.S. and London. The U.S. has far fewer physical inventories of essential metals such as copper, aluminum, and zinc. LME stocks are largely found in Asia and Europe.
COMEX money punters also seem to have come to this conclusion. Short positions saw a sharp decline from 23,000 contracts to circa 22,000, down from 45,000 contracts in June. Long positions increased to circa 46,000 positions.
Commodities could therefore experience a price premium due to the shortage of raw materials in the U.S. Aluminum prices were already affected by this since the beginning of the year.
However, one thing is certain: copper consumption will still increase rapidly.
According to estimates by Citibank, copper consumption has increased by 22% since the beginning of the year compared to the previous year. Copper scrap and high-grade copper scrap exports are also increasing. This year, 104,000 tons have already left the country for China. This is due to the Chinese government’s new import regulations. From now on, only high-purity copper scrap greater than 80% Cu may be imported. Before, this was still destined for the U.S. market.
Meanwhile, U.S. copper imports must be increasing by 80,000 to 90,000 tons per month.
The bright spot at the tunnel?
Early reports say demand from the Chinese market is slowing. That would greatly increase opportunities for U.S. consumption as more copper (refined & scrap) would be available. However, other factors must be at play for the situation to improve. Chile the world’s largest copper producer will have to create more supplies.
Price increases will be inevitable, however, as other major economies in Europe and Asia are on the road to recovery.