Copper prices rose nearly 5% after the Grasberg mine in Indonesia declared force majeure due to an accident. This situation raised concerns about supply issues, especially as treatment and refining charges at smelters fell, indicating potential material shortages. The International Copper Study Group reported that mine production increased in the first seven months of the year, with gains in Chile, Peru, and the Democratic Republic of Congo. However, Indonesia’s output decreased by 32%. Overall, global mine output grew by 3.4%, and metal production was up by 3.9% in the same timeframe. Even with rising demand—mostly from China, which consumes about 60% of the world’s copper—the supply has created a surplus of 100,000 tons. This is still lower than last year’s surplus of 400,000 tons for the same period. The market is well-supplied, but less so than before. The recent surge in copper prices shows how anxious the market is regarding supply. Just one news story about the Grasberg mine caused a big price jump, highlighting fears of shortages. This nervousness has been building, especially as low fees at smelters indicate a lack of raw copper concentrate. For traders, there’s a clash between market sentiment and actual data. While headlines drive reactions, global mine production has increased by 3.4% this year. This suggests the recent price spike might be an overreaction, creating opportunities for those who believe in the overall production figures. China’s demand is crucial, and recent data shows a stable growth trend. China’s official manufacturing PMI for August 2025 was 50.8, signifying ongoing expansion in the industrial sector. This solid demand makes the market sensitive to supply news, but it doesn’t indicate a shortage. The supply situation is better than the Grasberg news suggests; increases in output from major producers in Chile and Peru offset Indonesia’s issues. Similar supply concerns triggered price volatility in early 2024 before the market stabilized, and current global production numbers hint at a similar situation occurring now. This nervousness is evident in the derivatives market, where implied volatility on copper options has significantly increased recently. The rise in demand for short-dated call options shows that traders are preparing for more price spikes. This situation offers an opportunity to sell volatility for those who believe the surplus will eventually weigh down prices. Despite worries about supply, the global market has a surplus of 100,000 tons for 2025. This surplus is smaller than last year’s 400,000 tons, leading to increased sensitivity in the market. Any disruption now has a more significant psychological impact because the safety net is smaller. Recent data from the London Metal Exchange (LME) shows that copper inventories have decreased by about 5% in the last month, contributing to bullish sentiment. However, these warehouse levels are still much higher than the lows experienced during the 2022 supply crunch. This indicates that, while inventories are tightening, there is not yet a physical squeeze justifying ongoing panic over prices.

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