Ivan

Following up on yesterday's post, here is what the 12-month chart looks like for the Yangshan premium, which yesterday hit a RECORD $178 per tonne of copper. That record broke again this morning. This tells us that despite all the macro noise, nothing has changed in the PHYSICAL world. The Yangshan copper premium is the extra cost paid over the benchmark London Metal Exchange (LME) price to import refined copper into China. The RECORD premium signals a lack of available short-term supply, strong domestic demand and low local warehouse inventories. China is the world's largest consumer of refined copper, accounting for ~60% of global consumption. This problem is not unique to China, as other major economies around the world also face the same reality when they try to get their hands on copper metal... they have to pay up. The copper market only wants to react upwards when the physical market globally is tight and shows no signs of easing.

Each year during LME week the world’s leading metals traders come through London. Over the course of the week, a consensus is typically formed on what is the short- to long-term outlook for each metal. Often the consensus is right, but sometimes it is wrong (e.g last year’s consensus was to be short zinc… and over the past 12 months it has been one of the best performing commodities). This year was probably the first year in a while where a consensus view on copper was not unanimously agreed upon. The bears talked down data-centre/AI trade demand, saying it won’t meet expectations… while the bulls talk to the shortage of copper supply… no matter the demand outlook. Eitherway, the week ended with ‘risk-off’ selling of equities and commodities. Copper finished the week at $6.50 per pound… only ~5% below its all-time high. Also by the end of the week, copper cathode premiums into China reached a RECORD high of $158 per tonne (up again this morning to $178 per tonne)… premiums set by @codelco for delivery into Europe were a RECORD $350 per tonne…. And Europe’s biggest copper smelter, @Aurubis_AG, increased its 2027 premium by +10% to a RECORD $347 per tonne. Also… spot copper treatment and refining charges (TC/RCs) reached a RECORD NEGATIVE $300 per dry tonne of concentrate smelted and 30 cents per payable pound of copper refined (“-300/-30”) last week… and we expect to hear news soon of a RECORD low for next year’s annual TC/RC benchmark. We are hearing the 2027 benchmark may settle around NEGATIVE 150/15 (the previous record is this year’s 0/0)… We will know for sure by the end of CESCO Shanghai Week in mid-November. The trend of RECORD HIGH copper premiums and RECORD LOW TC/RCs is a CLEAR indicator of imminent shortages in copper supply. So… to echo the comments made by Max Layton of @Citi on copper, “we view any associated risk off-episodes as good long-term buying opportunities.”