On Friday, January 23, three-month copper on the London Metal Exchange (LME) continued its upward trend, reaching a high of $13,173.50 per tonne during the session and trading above $13,000 during the North American session, representing a daily gain of over 1.5%. This rally was driven by multiple factors, the most direct being the weakening US dollar. This week, the dollar is likely to record one of its most significant weekly declines since June of last year, increasing the attractiveness of dollar-denominated commodities and strengthening the purchasing intentions of non-US dollar funds, providing a floor for base metals, including copper.



Copper possesses both financial and industrial attributes, and its valuation logic has been reactivated against the backdrop of a depreciating US dollar. Meanwhile, other base metals such as aluminum, zinc, and lead generally rose, with tin and nickel surging by 3.3% and 3.1% respectively, indicating that the entire non-ferrous metals sector has entered a collective recovery phase. This sector-wide rise easily attracts trend-following funds to increase their holdings, further amplifying copper's upward momentum. However, despite the strong price performance, subtle changes have emerged in the market's internal structure, suggesting that a one-sided, linear upward trend may be unsustainable.

Supply disruptions fuel sentiment, but supply is recovering in the medium term.

Unexpected supply-side news has been a major driver of recent copper prices. A worker strike at Chile's Mantoverde mine led to a production halt, quickly triggering market concerns about short-term spot tightness and causing increased volatility in near-month premiums and discounts. Such events often stimulate bullish sentiment in the short term, especially at current high price levels, where any minor disturbance can be amplified. However, historical experience shows that the actual impact of strikes depends on their duration and the progress of negotiations; once legal proceedings begin or an agreement is reached, the impact of the production stoppage usually gradually diminishes.

Meanwhile, another major mining company, Grasberg, has clearly stated that it expects to restore approximately 85% of its production in the second half of this year. This production recovery guidance offsets some of the anticipated supply gap and limits the market's excessive speculation about a "long-term shortage." In other words, although short-term disturbances are still unfolding, the medium- to long-term supply recovery path is clear, making it difficult to support prices continuously breaking new highs. This also means that current copper prices are more dependent on unforeseen events than on a fundamental shortage.

This round of price increases is driven more by financial factors and supply disruptions than by proactive expansion of end-user demand. Without genuine consumer support, the sustainability of price increases will be tested. Especially when leveraged funds are concentrated, any reversal in sentiment or weaker-than-expected data could lead to a rapid price pullback. Analysts point out that the market is currently at a sensitive juncture: demand has not collapsed, but it is also unable to support higher prices, and the upward momentum is becoming increasingly fragile.

Inventory rebound and structural reversal suggest a potential shift in market trends.

More noteworthy are the changes in inventory and inter-month structure. This week, the significant narrowing of premiums between contracts on different exchanges reduced arbitrage opportunities across markets, prompting some supplies to flow to LME's registered warehouses in North America. Simultaneously, some exchanges signaled an easing of spot market tightness. More importantly, the spread between LME spot copper and three-month futures has shifted from a premium of $102 on Tuesday to a discount of $83, marking the widest discount level since September.

A widening discount typically indicates increased near-term supply pressure or a rise in deliverable goods inflows, which is unfavorable for continued short-squeeze rallies. Technically, the 30-minute chart shows that after a rapid price increase, prices have entered a period of consolidation at higher levels. The RSI has reached 72.26, suggesting short-term overbought conditions. While the MACD remains in the strong zone, the risk-reward ratio for chasing higher prices has decreased. Previous key support lies at $12,826.00, with the $12,978.00 area acting as a consolidation platform; this area may become a crucial battleground for a rebalancing between bulls and bears.



In summary, copper prices will continue to be supported in the short term by a weak dollar and supply disruptions, but signals such as rising inventories, widening discounts, and low premiums indicate that the "shortage narrative" is cooling down. Future price movements will focus on two main themes: first, whether the strikes will continue and substantially impact shipments; and second, whether the inventory increase can be effectively absorbed and whether the inter-period structure can tighten again. Given that prices are already at historical highs, the market is more likely to complete repricing through structural adjustments, potentially leading to a significant increase in volatility. A game between "real shortages" and "financial bubbles" has only just begun to unfold.