Copper Surge Driven by Supply Chain Disruptions, Not Economic Growth

Copper prices have surged to record levels on the London Metal Exchange (LME), but this time it's not driven by a strong economy. The cash contract is trading at a premium of $434 per tonne over three-month futures, the widest gap in five years.

The move is largely supply-driven, with various disruptions and restrictions impacting copper production. The Democratic Republic of Congo has banned exports of copper and cobalt concentrates, while heavy rain in Chile forced Los Pelambres to halt operations and led Antofagasta to cut annual output guidance by about 5%.

Codelco's Andes Norte project has been delayed until 2029, and Indonesia's Gresik smelter has shut due to furnace damage. This has reduced available stockpiles on the LME, which fell for a 42nd consecutive day to 204,975 tonnes, the longest run since 2014.

Analysts warn that if inventories continue flowing east and west, copper prices could drop sharply. The Bank of America's Michael Widmer said the move is mainly supply-driven, with weak mine growth and weather disruptions adding further constraints.