Copper Prices Plummet After Record Gains Amidst Market Turmoil

(Bloomberg) — Copper (HG=F) experienced a significant decline from its record high as a tumultuous week for metals culminated in frantic trading, extensive gains, and a surprising one-hour delay to the London Metal Exchange’s opening.

Delayed Opening Heightens Market Tension

The world’s largest metals exchange opened later than usual at 10:00 a.m. Hong Kong time on Friday due to a potential technical issue identified during standard pre-trading checks. The precautionary delay created an anxious atmosphere as market participants in Asia speculated about possible losses stemming from the dramatic price movements observed the previous day.

Significant Decline in Copper Futures

After the delayed start, benchmark three-month copper futures dropped nearly 4%, nearing $13,000 per ton on the LME. This sharp decline followed a surge above $14,500 on Thursday, driven by an unexpected influx of buying from Chinese speculative investors. The end-of-week slump occurred as mainland purchasers stepped back, other commodities like gold also fell, and the value of the US dollar increased.

Factors Behind Market Volatility

Copper trading has recently been propelled by optimism surrounding demand from the energy transition and a weakening U.S. dollar, which hit a four-year low earlier this week. Investors are increasingly inclined towards tangible assets, including precious metals like gold. Nevertheless, financial institutions such as Citigroup have indicated that manufacturing demand alone does not justify the recent price surges in industrial commodities.

Shifting Trader Strategies in a Volatile Market

“Many traders feel that the current market behavior has overturned their trading experience and strategies,” remarked Zhou Zhentin, a trader at KS Commodities Co. This shift has compelled industry professionals who were once focused on traditional nonferrous trading to pivot towards studying elements like gold, artificial intelligence, and geopolitical developments.

Market Dynamics and Price Predictions

The rush into copper and other base metals propelled the LMEX Index to a new high on Thursday, surpassing its previous peak set in 2022. Copper, essential for wiring and batteries, has drawn intense focus due to supply chain disruptions, potential U.S. import tariffs, and rising demand tied to global electrification efforts. Citigroup analysts predict physical pushback against soaring prices, citing potential increases in scrap supply and demand destruction as challenges moving forward.

Near-Term Market Conditions and Speculative Trends

As of Friday, copper prices dropped further, influenced by profit-taking and gains in the U.S. dollar amid speculation regarding a potential federal appointment. The rising dollar typically exerts downward pressure on raw materials. By 10:21 a.m. in London, copper fell 2.6% to $13,257 per ton, representing a roughly 6% rise for the month so far. Tin continued to shine, remaining the LME’s top performer with a year-to-date increase exceeding 25%.

Looking Ahead: Adjustments Needed in Market Expectations

According to Jerry Zhang, a trader at Ningbo Meishan Bonded Port Hongyi Investment Management Partnership Co., “The market’s expectations have become too uniform at this stage and require some adjustment.” With increased volatility, traders are inclined to manage risk and limit exposure. The recent trading pause at the LME was insignificant compared to past disruptions, such as the major data center malfunction affecting the CME Group in December, which halted various markets for over 10 hours.

As the market continues to evolve, Citigroup suggests that while copper may see further near-term rallies, the underlying demand will remain a critical factor to monitor.