Copper prices bounce as US runs out of warehouse space

Copper prices climbed for the fifth consecutive day on Monday, as a combination of restricted supply in China and a surge in stock markets propelled the metal back towards the record it achieved earlier in the month. Comex copper for December delivery rose up to 3.3% to $6.8410 per pound in New York, its highest level since September 10, and was trading around $6.7770 per pound at midday, marking a 1.3% increase for the day.

The London Metal Exchange's benchmark three-month copper reached $14,710.50 per tonne, also a high since September 10, before settling around $14,650. Copper's 11th weekly gain in the past 12 occurred on Friday. The metal had reached an all-time high of $14,875 per tonne on September 10, but faltered after concerns over the timing of US tariffs on refined metal and hawkish remarks from the Federal Reserve pushed it back.

The Federal Reserve had raised its benchmark rate by a quarter point the previous week, signaling more potential increases. Higher borrowing costs generally discourage demand for industrial commodities. In the week ending September 15, funds reduced their net long positions in Comex copper due to the uncertainty surrounding tariffs, but speculative buying resumed as expectations grew that Chinese manufacturers would replenish supplies before China's holidays on September 25 and from October 1 to 7, according to Saxo Bank's Ole Hansen.

Chinese buyers were willing to pay a premium for metal. The Yangshan premium, the surcharge paid on top of London prices for copper delivered to China's primary import hub outside Shanghai, ended last week at $124 per tonne, its highest in nearly four years, before easing to $119 on Monday. Such scarcity appears unlikely to diminish before year-end.

Planned maintenance at several Chinese refineries in October and November, coupled with congestion at Shanghai port, will make it difficult to gauge how quickly imported cargoes will arrive. The most evident sign of tightness is on the London Metal Exchange itself. Cash copper is now trading at a $26 per tonne premium to the three-month contract, a backwardation that has flipped from an $86 discount just a week ago.

Buyers are paying more for metal today than for delivery in three months, signaling their impatience. The London exchange's stocks reveal why: of the 255,900 tonnes of copper in LME warehouses on Monday, 115,450 tonnes, or 45%, are cancelled warrants earmarked for withdrawal, after another 9,600 tonnes were cancelled in Asia. The actual metal accessible to the market has shrunk to 133,725 tonnes.

On the other side, the United States holds 696,204 tonnes in Comex warehouses, representing 69% of all exchange-monitored copper. However, this stockpile is no longer expanding: stocks fell by 65 tonnes last week for the first weekly decline since April. The Comex premium over LME has narrowed to around 1.6 cents per pound, the tightest since April.

With storage at the Port of New Orleans, the primary Comex delivery hub, largely full and another 100,000 tonnes of African and South American copper due in September and October, the US is rapidly running out of space to accommodate more. The broader economic context also contributed to the price rise on Monday. Oil prices dropped on hopes of diplomacy in the Iran war, alleviating concerns that crude near $100 a barrel would throttle the global economy, and stock markets rallied ahead of this week's summit between US President Donald Trump and China's Xi Jinping.

Copper equities followed the metal higher on Monday, but the sector remains in the red for September following its pullback from the September 10 peak. Freeport-McMoRan, the largest listed copper producer, rose 0.6% to $71.94, lifting its market value to $103.3 billion, but it remains down 5% for the month. Southern Copper added 0.7% to a market value of $166.3 billion, narrowly surpassing Rio Tinto at $165.2 billion to claim the second spot in MINING.COM's ranking of the world's most valuable miners. Southern Copper briefly led Rio in August before falling back and is now 5.7% lower for the month.