Copper prices have soared to a record high, not because of increased industrial demand, but due to fragmented inventory systems. This fragmentation has particularly favored Copper markets, which are facing pressure from potential tariffs. These tariffs encourage the movement of available metal into the US, making the London Metal Exchange (LME) tighter than usual. With global inventory pools being depleted more quickly, LME prices are rising. The expected growth of data center capacity in China could disrupt the supply and demand balance further in the coming years. Additionally, the world is struggling with mining disruptions in Copper markets, and smelter production could be jeopardized if the revenue from byproduct precious metals falls. These market conditions have created a situation where traditional supply-demand dynamics don’t entirely explain base metal returns. The focus has shifted not only to possible trade agreements but also to larger themes that are influencing the metals market today. The FXStreet Insights Team gathers market insights from various experts to provide a clear view of industry trends. With copper prices reaching a new high above $12,500 per tonne on the LME, it’s important to note that this isn’t driven by traditional demand. The strength in prices comes from a structural disruption in global inventories, not from a surge in industrial activity. Therefore, traditional methods of tracking factory output are less relevant. The ongoing threat of tariffs, particularly the expanded US measures on processed metals enacted last month, plays a significant role in this situation. These tariffs are causing a continuous flow of available copper into the United States, which leaves the rest of the world and the LME system unusually tight. LME-registered copper stocks have fallen below 30,000 tonnes, a level we haven’t seen in years, making the market highly sensitive to any supply shock. For derivative traders, this suggests that volatility is likely to remain high, and any drops in price will be short-lived and aggressively bought. Buying long-dated call options to anticipate further price increases seems wise, as the underlying supply squeeze is likely not a temporary problem. The market is poised to react sharply to any news indicating physical shortages. Looking ahead, we see demand factors that will worsen this supply imbalance. China’s Five-Year Plan, outlined earlier in 2025, includes ambitious goals for data center growth, which will require immense amounts of copper in the coming years. This long-term demand is already being factored into a market that is low on inventory. The supply side is extremely fragile, making the market susceptible to additional squeezes. We cannot afford any more mining disruptions, such as the recent labor strikes at a major Peruvian mine earlier this month. This scenario is akin to the commodity supercycle we experienced in 2021-2022, but now it’s driven by a more lasting supply deficit.

here to set up a live account on VT Markets now