Insights 
VT 
Base metal prices saw an increase at the start of the week. The potential trade agreement between the US and China eased concerns, as both parties agreed on key points, averting new punitive tariffs on Chinese imports.
Copper is nearing its record high of $11,000 per ton. This is prompted by improved demand outlook and ongoing supply concerns, as London Metal Exchange (LME) inventories continue to decline.
Speculation suggests that the fall in LME inventories is not due to a supply shortage but rather metal being redirected to the US. This comes as the COMEX price surpasses the LME price.
Although the US government has not imposed tariffs on refined Copper, this trend is unexpected. Nonetheless, LME inventory recovery is anticipated since metal production remains strong in China, the leading producer.
The recent trade agreement reports are providing a major boost to base metals. With the threat of 100% tariffs on Chinese imports now off the table, a key headwind for global growth has been removed. This optimism is the main reason we’ve seen copper rally sharply following the presidential meeting last Thursday.
With this tailwind, copper is testing its all-time high of $11,000 per ton, a level we haven’t seriously challenged since the commodity spike back in early 2022. Implied volatility in copper options has increased, suggesting traders are positioning for a decisive break higher or a sharp rejection from this key resistance level. We are seeing significant open interest in call options with strike prices at $11,500 and $12,000 for December expiry.
The improved demand outlook is hitting a market with ongoing supply concerns, as LME inventories just fell below 75,000 tonnes for the first time this year. However, this appears to be less about a production shortage and more about an arbitrage opportunity, with metal flowing to the US. The price spread between COMEX and LME has now widened to over $150 per tonne, incentivizing this stock movement.
We assume this price difference will not last, especially since there are no new US tariffs on refined copper to justify it. China’s refined copper output for the third quarter actually hit a record high, suggesting ample global supply is available to restock LME warehouses once the spread narrows. This indicates that the current supply tightness reflected in the LME price may be temporary.
