Due to expectations of tariffs on the red metal, purchases of copper-based financial instruments in the US have significantly increased its price. However, fundamentals suggest that this value should eventually converge towards its fundamental levels, as reflected by London prices.
By David Nogales y Maximiliano Villena
Copper is trending. Expectations of tariffs on US imports of the red metal have elevated its price on the futures market to record levels, while the spot market shows different values. Will copper’s rally continue, or will its value return to fundamentals?.
Chile’s main export commodity is also traded in Shanghai and the United States, specifically on Comex, the primary futures and options market for metals trading such as gold, silver, aluminum, and, of course, copper.
Precisely in this market, copper achieved a milestone on Tuesday. According to data from the Chilean Copper Commission (Cochilco), the price of copper in this market was quoted at US$5.183 per pound, representing an increase of 2.34% compared to the previous session and marking a historic high. At the close of this edition, the derivative traded at US$5.24.
With this result, the price of copper in the US has accumulated a year-to-date increase of 30.03%, more than double the 13.5% rise recorded by the London Metal Exchange (LME). However, there are differences between the two indicators. In the US, the Comex market consists of financial derivatives with prices settled for delivery in three months, not necessarily involving physical metal purchases, whereas the European market quotes copper at the spot price. On the LME, copper closed down 0.98% at US$4.48 per pound.
Currently, the difference is US$0.72 per pound, influenced by possible tariff announcements by the US. Looking ahead, prices are expected to converge towards their fundamental levels.
According to Juan Carlos Guajardo, executive director of Plusmining, “the natural scenario should be that once the US imposes a copper tariff, purchases from that country would slow down for some time. Consequently, the current distortion observed on Comex should diminish and converge with LME prices.” Additionally, he notes that the London quotation reflects “a more realistic price, yet stresses that, until this external factor concludes”, it is impossible to know the fundamental price without the expectation of tariff announcements. Nonetheless, he projects an average copper price at around US$4.25 per pound.
However, Gonzalo Muñoz, market analyst at the trading firm XTB Latam, offers a different perspective. “Copper’s rally still has room to continue. There is scarcity, future demand looks strong, and if China continues to recover, the upward pressure on prices could persist or even intensify in the coming months.” Therefore, he believes LME prices might converge towards Comex values, narrowing the spread between both prices.
Reasons Behind the Increase
Beyond copper’s supply and demand projections, its price has been impacted by the tariff escalation initiated by Donald Trump, with copper now included.
It should be noted that a few weeks ago, the US President ordered the Department of Commerce to open an investigation into potential tariffs on copper and deliver a report within 270 days. This generated a buying surge, especially in the US, to stockpile the commodity, driving prices upwards.
According to a note from RBC Capital Markets, a significantly higher-than-usual quantity of copper is currently being shipped to the US.
Fuente: La Tercera