Base metal prices have risen at the beginning of the week. Hopes for a trade agreement between the US and China have calmed worries, as both countries have settled on key points, avoiding new tariffs on Chinese imports. Copper is close to reaching its record high of $11,000 per ton. This increase is driven by a better demand outlook and ongoing supply worries, as inventories at the London Metal Exchange (LME) keep dropping. Some believe that the decrease in LME inventories isn’t due to a lack of supply, but rather because metal is being sent to the US, especially as COMEX prices exceed LME prices. While the US hasn’t placed tariffs on refined copper, this trend is surprising. Still, LME inventories are expected to recover, as production in China, the top producer, remains strong. Recent reports of the trade agreement have significantly boosted base metals. With the risk of 100% tariffs on Chinese imports removed, a major obstacle to global growth is gone. This optimism has led to a sharp rise in copper prices after last Thursday’s presidential meeting. With this positive momentum, copper is testing its record-high price of $11,000 per ton, a level we haven’t seriously approached since the commodity surge in early 2022. The implied volatility in copper options has risen, indicating that traders are preparing for a possible big increase or a sharp drop from this important resistance point. There is also notable interest in call options with strike prices of $11,500 and $12,000 set for December. The improved demand outlook is meeting a market facing supply concerns, as LME inventories recently fell below 75,000 tonnes for the first time this year. However, it seems this is more about metal shifting to the US for profit, rather than a production shortage. The price difference between COMEX and LME has now exceeded $150 per tonne, encouraging this movement. We believe this price gap won’t last, especially since there are no new US tariffs on refined copper that could explain it. China’s refined copper production in the third quarter actually reached a record high, suggesting that there is enough global supply to replenish LME warehouses once the price gap narrows. This means that the current tight supply reflected in LME prices may be short-lived.

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