Copper price breaks three-month high! LME copper approaches $10,000, can the upward trend continue?
2025-07-01 21:24:21
On Tuesday (July 1), copper futures prices on the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) both rose, with LME benchmark copper (CMCU3) rising 0.7% to $9,945 per tonne during the official trading session, and hitting a three-month high of $9,984 during the session, the highest level since March 27, 2025. The main SHFE copper contract also performed strongly, driven by improved manufacturing data in China, the world's largest copper consumer, and a weaker dollar. The market broke out of the recent shock consolidation, and traders' reactions to the latest economic data and tightening supply drove prices up. However, the interaction between global macroeconomic uncertainty and spot market signals deserves in-depth analysis by futures traders.
The main driver of this round of price increases comes from the recovery of China's manufacturing industry. In June, private sector surveys showed that China's factory activity expanded, with new orders driving production growth. As a market that consumes nearly half of the world's copper, this data boosted market confidence. For traders focusing on futures contracts, this shows that Shanghai copper prices are supported by the recovery of domestic industrial demand. Combined with market rumors, Chinese manufacturers are replenishing inventories, further tightening the supply chain and enhancing price momentum.
The bullish sentiment is further reinforced by the significant decline in inventories. Copper stocks in LME-registered warehouses have fallen 66% since mid-February to just 91,250 tonnes. Similarly, stocks in warehouses monitored by the SHFE have also fallen 66% since early March to 81,550 tonnes. The simultaneous decline in inventories at the two major exchanges highlights the tight global copper supply situation. A well-known industry research institution pointed out: "Overall supply on the two major exchanges remains tight, reflecting strong underlying demand and driving the spot backwardation." Spot backwardation refers to the premium of near-term contracts over forward contracts. The premium of LME spot to three-month forward contracts (CMCU0-3) reached $319 per tonne last week, the highest since October 2024, and then fell back to about $120. This market structure reflects expectations of short-term supply tightness and is of great guiding significance to futures traders' position management.
The dynamics of the spot market further amplified this trend. LME data showed that the cancellation of warehouse warrants indicated that 31,975 tons of copper would be withdrawn from the exchange system, even though 1,500 tons of copper were added to warehouses at the South Korean port of Gwangyang on Monday. This inventory outflow indicates that end users or traders are actively withdrawing metal, perhaps in response to continued demand or to hedge against the risk of price increases. For Shanghai copper, the decline in inventories is in line with China's manufacturing recovery, with increased purchases by processing companies and the construction industry. These spot market signals provide a solid foundation for the rise in futures prices, indicating that demand is outstripping available supply.
The weaker dollar also played a key role. The decline in the dollar price reduces the cost of copper denominated in dollars for holders of other currencies, stimulating demand. This dynamic is particularly important for algorithmic trading funds that rely on currency signals. The recent weakness of the dollar has provided a tailwind for LME copper prices and attracted speculative buying. However, traders should be wary of fluctuations in the US dollar exchange rate. Sudden dollar strength may weaken this momentum.
Global macro factors add complexity to the market. U.S. President Trump's tariff rhetoric has sparked market concerns, pushing up COMEX copper prices and placing them at a premium to LME prices. This has indirectly supported LME copper prices, creating price arbitrage opportunities, while exacerbating inventory tightness as U.S. buyers are eager to lock in supplies. For futures traders, monitoring inter-market spreads is critical, which can affect hedging strategies and contract pricing.
Looking ahead, the outlook for LME and SHFE copper futures is cautiously positive, supported by improving Chinese demand fundamentals and tight global inventories. Continued inventory declines and spot premiums suggest that supply constraints will continue to push prices higher in the near term, especially as China's manufacturing recovery further consolidates. However, global macro uncertainties, including exchange rate fluctuations and tariff-related developments, may bring volatility. The interaction between Chinese industrial activity and spot market dynamics will be key in determining whether copper prices can continue to rise.
The main driver of this round of price increases comes from the recovery of China's manufacturing industry. In June, private sector surveys showed that China's factory activity expanded, with new orders driving production growth. As a market that consumes nearly half of the world's copper, this data boosted market confidence. For traders focusing on futures contracts, this shows that Shanghai copper prices are supported by the recovery of domestic industrial demand. Combined with market rumors, Chinese manufacturers are replenishing inventories, further tightening the supply chain and enhancing price momentum.
The bullish sentiment is further reinforced by the significant decline in inventories. Copper stocks in LME-registered warehouses have fallen 66% since mid-February to just 91,250 tonnes. Similarly, stocks in warehouses monitored by the SHFE have also fallen 66% since early March to 81,550 tonnes. The simultaneous decline in inventories at the two major exchanges highlights the tight global copper supply situation. A well-known industry research institution pointed out: "Overall supply on the two major exchanges remains tight, reflecting strong underlying demand and driving the spot backwardation." Spot backwardation refers to the premium of near-term contracts over forward contracts. The premium of LME spot to three-month forward contracts (CMCU0-3) reached $319 per tonne last week, the highest since October 2024, and then fell back to about $120. This market structure reflects expectations of short-term supply tightness and is of great guiding significance to futures traders' position management.
The dynamics of the spot market further amplified this trend. LME data showed that the cancellation of warehouse warrants indicated that 31,975 tons of copper would be withdrawn from the exchange system, even though 1,500 tons of copper were added to warehouses at the South Korean port of Gwangyang on Monday. This inventory outflow indicates that end users or traders are actively withdrawing metal, perhaps in response to continued demand or to hedge against the risk of price increases. For Shanghai copper, the decline in inventories is in line with China's manufacturing recovery, with increased purchases by processing companies and the construction industry. These spot market signals provide a solid foundation for the rise in futures prices, indicating that demand is outstripping available supply.
The weaker dollar also played a key role. The decline in the dollar price reduces the cost of copper denominated in dollars for holders of other currencies, stimulating demand. This dynamic is particularly important for algorithmic trading funds that rely on currency signals. The recent weakness of the dollar has provided a tailwind for LME copper prices and attracted speculative buying. However, traders should be wary of fluctuations in the US dollar exchange rate. Sudden dollar strength may weaken this momentum.
Global macro factors add complexity to the market. U.S. President Trump's tariff rhetoric has sparked market concerns, pushing up COMEX copper prices and placing them at a premium to LME prices. This has indirectly supported LME copper prices, creating price arbitrage opportunities, while exacerbating inventory tightness as U.S. buyers are eager to lock in supplies. For futures traders, monitoring inter-market spreads is critical, which can affect hedging strategies and contract pricing.
Looking ahead, the outlook for LME and SHFE copper futures is cautiously positive, supported by improving Chinese demand fundamentals and tight global inventories. Continued inventory declines and spot premiums suggest that supply constraints will continue to push prices higher in the near term, especially as China's manufacturing recovery further consolidates. However, global macro uncertainties, including exchange rate fluctuations and tariff-related developments, may bring volatility. The interaction between Chinese industrial activity and spot market dynamics will be key in determining whether copper prices can continue to rise.
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