Contracts traded on the US exchange reached a gap versus London not seen since before 1990. According to several forecasts, the price is expected to keep rising.
By Patricia Marchetti
The copper market, Chile’s crown jewel, is experiencing historic days. Uncertainty over when potential tariffs on US copper imports will be imposed—seemingly imminent—has pushed copper prices to record highs on the Comex commodities exchange in New York, surpassing US$5.35 per pound intraday.
Year-to-date, copper prices have increased by 30% in the US market, compared to 15% on the London Metal Exchange (LME) and 12% in the Shanghai benchmark. Various estimates suggest prices should continue rising.
For context, according to Juan Cristóbal Ciudad, Senior Analyst for Markets and Industry at Plusmining, on March 25th, the volume traded across the three major copper exchanges totaled 3.7 million tons, equivalent to US$37.8 billion, marking a historic high.
Notably, Comex prices usually trade above those in London, but due to the current surge in the US, the price gap exceeds 14%, a differential not seen since before 1990.
Daniela Desormeaux, Head of Research at Vantaz Group, explains, “This is partly due to market-specific features: while both contracts allow physical delivery, the LME operates through a global network of warehouses, whereas Comex is limited to storage facilities within the US.”
Consequently, she adds, “Comex prices are more influenced by regional factors, such as local premiums, tariff expectations, or logistical tensions.”
Understanding the term “contract” is crucial. Patricia Gamboa, Director of Research and Public Policy at Cochilco, explains that the mentioned exchanges “trade contracts associated with a volume of tons, not actual tons.” She specifies that one contract on the LME equals 25 metric tons, while a Comex contract represents 25,000 pounds (11.34 metric tons).
“This equates to a weekly variation of -1.2% but a 31% annual increase, considering inventories held in warehouses across the three exchanges,” says Gamboa.
For instance, on March 24th, 198,091 contracts were traded between the two exchanges, translating to 3,862,671 metric tons.
And how is the reference price for contracts determined?
Emilio Castillo, Director at Cesco and Professor at the Mining Engineering Faculty of Universidad de Chile, comments: “In cathode trading, most contracts use the ‘M+1’ valuation clause, referring to the average monthly price one month after the shipment date.” For example, a shipment made in February would use the average price from March for final settlement.
Similarly, Gamboa adds that for copper concentrate, the pricing clause generally follows “M+3” or “M+4.”
Regarding the impact current copper price fluctuations could have on contracts, Castillo clarifies that first, “these are normal variations,” and secondly, “if a contract references Comex or LME, then the variation and uncertainty transfer through that agreement.” He adds that fixed-price valuation clauses are “very rare.”
Specifically, for Codelco, representing 45% of Chile’s copper shipments to the US, “we use LME prices as a reference, as it is a deeper and more representative mining market,” representatives from the state-owned firm told DF.
Forecasts
Copper’s new records came just one day after major traders predicted at a Financial Times summit that the metal could reach at least US$5.44 per pound this year.
Kostas Bintas, former Trafigura executive and current Global Head of Metals at Mercuria, projected that copper could rise up to a third above current levels. “It’s hard for me to put a number on it because this has never happened before,” he stated.
In its report last week, Goldman Sachs indicated: “We remain structurally bullish” on the copper market.
Source: Diario Financiero