Copper prices continue to rise, staging a forced air battle

Last week, copper futures prices on the New York Mercantile Exchange (COMEX) surged to a historic high. Especially for the main July contract, the price reached a high of $11200 per ton at the close of last Friday, with a weekly increase of over 9%. The increase in copper prices has increased the procurement costs of downstream enterprises, which has had a negative impact on the operation and export competitiveness of the manufacturing industry. Some processing enterprises have reduced their procurement volume or stopped production due to increased funding needs and price risks.

The current cross market price difference of copper futures continues to widen, higher than the historical average level. According to a report by Caixin, considering costs such as shipping and insurance rates, traders extract copper from the LME system and deliver it to CME, earning approximately $300 per ton. With the continuous rise of copper prices, the pressure on short funds is also increasing, and many bulls are secretly accumulating strength, ready to join the game at any time and share a piece of cake.

The main trigger for the sudden epic short selling of New York copper futures is the tightening of copper supply and demand. On the one hand, frequent disturbances on the supply side have raised concerns about copper supply shortages; On the other hand, the global manufacturing recovery and energy transformation have boosted demand for copper. Copper is known as the "mother of cycles", and its price is closely related to the global manufacturing cycle. When global manufacturing begins to replenish inventory, the demand for core commodities such as automobiles, electronics, home appliances, and real estate chains often drives up copper prices.

At the same time as demand has increased, there has been a tense situation in the supply of copper. The current copper mine production will sharply decline in the coming years, and institutions predict that miners will need to invest over $150 billion between 2025 and 2032 to expand copper mine capital expenditures in order to meet the industry's supply demand. Against the backdrop of tight copper supply and demand, an epic transaction continues to attract market attention. On May 13th local time, global mining giant BHP Billiton announced that the company had once again made a bid to acquire Anglo American Resources Group, raising the price to £ 34 billion (approximately RMB 310 billion), but was rejected. According to analysts and traders, BHP Billiton needs to increase its bid to at least £ 37.2 billion (approximately RMB 340 billion) in order to acquire Anglo American resources.

On May 9th, the COMEX copper futures main contract began a significant upward trend in this round, hitting a record high of $5.128 per pound (approximately $11300 per ton) on May 15th. On May 21st, COMEX copper futures rose during the trading session and then fell, hitting a low of $5.01 per pound, slightly lower than the historical high set on Monday ($5.19 per pound). LME copper futures fell slightly by 0.7% during the trading session, reaching a minimum of $10768 per ton, and the cross market price difference gradually narrowed.

In the long run, copper ore supply remains tight, and there is still room for improvement on the consumer side. Against the backdrop of global economic fluctuations and intensified anti globalization trends, non-ferrous metals have become a hot topic of international capital speculation. At the same time, the sustained support of the domestic economy and the vigorous development of new industries, especially the rapid rise of new energy vehicles, photovoltaic power generation and other fields, have greatly promoted the growth of copper demand. If copper prices start to fluctuate narrowly without a significant decline, it will be a sign of consolidation before copper prices rise again, which is beneficial for the global economic outlook. But if copper prices reverse from their high point, it would be a warning signal that the economic situation may experience a significant slowdown due to the drag of credit tightening. This also means that the stock market may face a reversal, and there may be signs of capital allocation to two-year treasury bond bonds. Although the alarm has not yet sounded, we should remain vigilant.