Copper prices have jumped to almost $12,000 per ton, rising 36% since the start of the year. This surge follows a rate cut by the Federal Reserve and is primarily driven by worries about whether supply can keep up with increasing demand. In response to these higher prices, Chilean mining companies plan to invest a record $105 billion by 2034. This investment will fund expansions at the Escondida and Collahuasi mines to help increase copper supply. This proposed amount is 26% higher than last year’s forecast for 2024-2033, marking the largest investment since 2015. Key projects include expanding the Escondida mine, the biggest copper mine in the world, and building new concentrate plants at the Collahuasi mine. According to the FXStreet Insights Team, there have been notable changes in investment plans due to rising copper prices. With prices exceeding $11,900 per ton after the Fed’s recent rate cut, the immediate market outlook appears very positive. The 36% increase this year indicates a strong demand for copper that cannot be met by current supply. This suggests that purchasing call options or setting up bull call spreads could be profitable in the upcoming weeks. The demand for copper is backed by solid data. Global electric vehicle sales are expected to surpass 20 million units this year, a 25% increase from 2024. Additionally, the rapid expansion of AI data centers is driving up demand for copper wiring and busbars. This solid consumption strengthens the current price levels and supports a positive short-term outlook. We must also consider the planned $105 billion investment in Chilean mining through 2034. This investment figure is the highest since 2015 and hints at a strong future supply response. While this supply will take time to materialize, the market will soon factor it into longer-term contracts. This situation creates a tension between spot prices and future expectations, which is beneficial for traders in derivatives. We should think about selling longer-dated call options at higher prices, anticipating that these new supply announcements may limit the price rally in the coming months. This approach enables us to take advantage of the current high implied volatility while betting that prices won’t keep rising dramatically. Current market volatility, shown by the VIX of copper options climbing above 35%, makes buying options costly. Thus, premium-selling strategies, like writing cash-secured puts at around $10,500, look appealing. This strategy allows us to earn good premiums while positioning ourselves for a favorable entry point if a market correction occurs. We are also closely monitoring exchange inventories as a real-time indicator of actual supply tightness. LME registered copper stocks have dropped to only 48,500 tonnes, a critically low level not seen since the late 2021 supply squeeze. This tight physical supply supports current high prices and indicates potential for further short-term price spikes.

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