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Copper defies broader metals selloff as global supply tightness provides support
Key Points:
- Copper defies the broader metals selloff, supported by physical tightness, constrained mine supply and structural demand from electrification and AI infrastructure.
- Mine supply challenges reinforce the bullish outlook, with Chilean copper output hitting a multi-decade quarterly low and only a modest recovery expected next year.
- Speculative copper longs have halved in five weeks from a five-year high of 82,600 contracts, yet prices have remained resilient, highlighting underlying market strength.
- US warehouses hold 86% of exchange-monitored stocks, leaving supply tight elsewhere and driving elevated physical premiums and LME backwardation, while tariff policy remains a key risk.
Copper has remained relatively resilient amid the recent broad-based metals selloff, which has triggered sizeable corrections in silver, platinum and gold. While copper has not been immune to the deterioration in risk appetite, a combination of tight physical supply, disappointing mine production and structural demand linked to electrification, the energy transition and AI-related infrastructure investment has helped prevent a correction of similar magnitude.
Supply constraints remain an important part of the story, with several major miners struggling to meet production targets. Chile, the world's largest copper producer, saw output slump to its lowest quarterly level in at least two decades during the third quarter, with the country forecasting only a modest recovery next year. These challenges are reinforcing concerns about the industry's ability to deliver sufficient new supply to meet longer-term demand growth.
The resilience is particularly notable given the scale of recent speculative selling. Towards the end of September, hedge funds and other large speculators had accumulated a five-year high net long position in COMEX HG copper futures of 82,600 contracts, equivalent to more than 2 billion pounds of copper. Over the following five weeks, that position was cut roughly in half through aggressive long liquidation, yet prices suffered relatively limited damage. The ability of copper to absorb such substantial selling without a major correction highlights the underlying strength of the market and suggests that physical demand and supply constraints have helped offset the retreat of speculative investors.
Exchange inventories highlight geographical imbalances
Copper inventories monitored by the three major futures exchanges edged lower last week, falling by 6,000 tonnes to 1.047 million tonnes. LME stocks were broadly unchanged, while a 3,800-tonne increase at COMEX was more than offset by a 9,700-tonne decline at the Shanghai Futures Exchange (SHFE), where inventories fell to just 44,600 tonnes, approaching last month's three-year low of 38,700 tonnes.
The headline figure continues to mask a significant geographical imbalance. COMEX warehouses now account for around 70% of total exchange-monitored stocks. Including the 175,000 tonnes held in US-based LME warehouses, equivalent to 64% of total LME inventories, lifts the US share to approximately 86%. While some of these stockpiles may remain in bonded storage and could therefore be re-exported without incurring US import duties, the prevailing market assumption is that most of the metal shipped to US LME warehouses ahead of potential tariffs has already cleared customs. After all, the primary incentive behind the pre-tariff import rush was to bring copper inside the US tariff wall before any duties were imposed.
This concentration highlights how tariff uncertainty and the resulting arbitrage opportunities have encouraged copper to accumulate in the US, leaving significantly less exchange-monitored metal readily available elsewhere. The resulting tightness is increasingly reflected in physical premiums and nearby futures spreads.
In Asia, the Yangshan copper premium has surged towards USD 200 per tonne, signalling strong demand for imported refined copper relative to available supply. Meanwhile, the LME cash-to-three-month spread briefly moved into backwardation of more than USD 200 per tonne last week before easing to around USD 150 per tonne. These elevated premiums highlight the willingness of buyers to pay up for immediately available metal, providing underlying support for copper prices.
Together with ongoing mine supply challenges and expectations of sustained demand growth, these developments help explain why copper has so far avoided the sizeable corrections seen across other metals, despite substantial speculative long liquidation.
US tariff policy remains a key uncertainty
The key takeaway is that global exchange inventories remain relatively elevated, but their geographical distribution matters more than the headline total. With the bulk of visible stocks concentrated in the US, the market outside the US is showing signs of acute nearby tightness.
A potential change in US tariff policy, particularly a decision to exclude refined copper from import duties, could eventually encourage some of these accumulated stocks to flow back into the international market. However, for metal that has already cleared US customs, such shipments would need to be commercially attractive, with premiums in London and Shanghai sufficiently high to offset any unrecoverable costs already incurred, as well as freight and handling expenses.
Such a development could help ease physical premiums and nearby backwardation, potentially removing an important source of near-term price support. Until then, regional inventory imbalances, constrained mine supply and longer-term demand expectations are likely to remain key drivers of copper prices, helping explain the metal's relative resilience despite a challenging environment for the broader metals sector.
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