Macro

Copper Futures Hit Record $5.128 Amid NY Short Squeeze

Copper prices on New York Comex soar over $1,200 above LME due to unprecedented short squeeze, sparking global supply scramble.

By Barry Stearns

5/16, 05:16 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • Comex copper futures soared to a record $5.128 a pound due to a short squeeze, creating an unprecedented premium over LME prices.
  • The squeeze has prompted global efforts to ship copper to the US, with inventories in the US significantly lower than demand.
  • Despite some easing, logistical challenges and non-deliverable foreign copper brands complicate resolving the squeeze before July contract expiry.

Copper Price Dislocation Shakes Markets

A significant divergence has emerged between copper prices on the New York Comex exchange and other global commodity exchanges, leading to a record premium of over $1,200 per ton for New York copper futures above the London Metal Exchange (LME) price. This unprecedented gap, typically just a few dollars, has been driven by a short squeeze on the Comex, catching major market players, from Chinese traders to quantitative hedge funds, off guard. These entities are now in a rush to secure copper to fulfill expiring futures contracts. The volatility underscores the potential for rapid market disarray amid low inventory levels and logistical challenges, a situation exacerbated by speculative interest in copper due to forecasts of long-term production not meeting demand.

Short Squeeze Sparks Rally

The most-active futures contract for July delivery on Comex experienced a surge of up to 10%, reaching a record high, while the global benchmark on the LME remained relatively stable. This situation, described as a classic short squeeze, forced market participants betting on a price alignment between Comex, LME, and the Shanghai Futures Exchange to cover their positions as prices escalated. The spread between Comex and LME widened to over $1,000 a ton, a scenario never seen before, according to Colin Hamilton of BMO Capital Markets. Hedge funds and traders, leveraging bets on this differential, found themselves in a precarious position as the squeeze intensified.

Global Rush for US Copper

The squeeze has triggered a global scramble to redirect copper supplies to the US. Chinese traders and South American miners, including Chilean giant Codelco, are seeking to maximize deliveries to the US market, despite logistical hurdles such as fully booked shipping schedules. The Comex copper squeeze has highlighted the tight supply situation in the US, with inventories at historically low levels relative to demand. This dislocation has prompted actions reminiscent of past commodity squeezes, where extraordinary measures were taken to fulfill contract obligations.

Street Views

  • Matthew Heap, Orion Resource Partners (Bullish on copper):

    "The broader story is that there are new investment funds that are boosting their exposure to copper for a multitude of reasons, and while that’s a global trend, a huge amount of that investment has been heading to Comex."

  • Colin Hamilton, BMO Capital Markets (Neutral on the copper market dynamics):

    "There has been a squeeze on short positions into contract expiry, exacerbating the move."

  • Anant Jatia, Greenland Investment Management (Neutral on the near-term resolution of the copper squeeze):

    "We do not think the physical arbitrage activity will be sufficient by the July expiry to close the arb on the near month. There is not enough material and not enough time... However, physical traders are currently heavily incentivized to move copper into the US and over time the arb market will stabilize."