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Copper price surges as investors pile in to looming supply gap

Copper prices have been on a steady climb this week, driven by growing investor confidence amid worries about the metal's tightening supply.

At the London Metal Exchange (LME), copper prices surged by as much as 4.4 percent since Monday, marking a notable uptick in market activity.

Max Layton, Citi's global head of commodities research, noted the significance of this surge, labeling it as the initiation of the second secular bull market for copper in this century. Layton highlighted how investors who were previously hesitant are now jumping into the copper market, with many acquiring small to moderate positions in the metal over the past few weeks.

The copper market's robust fundamentals are underpinned by supply constraints and improving global economic conditions. However, the current price surge is also fueled by substantial financial inflows, both discretionary and momentum-driven, which may be pushing prices ahead of market fundamentals.

Hedge funds have notably increased their net long positions in copper, reaching levels not seen since February 2021, according to recent LME data. This momentum is supported by China's industrial sector recovery and supply disruptions at key mines, leading to potential production cutbacks at Chinese processing plants—a significant portion of global refined copper output.

The CRU World Copper Conference in Santiago, Chile, provided further insights into the copper market. Analysts at the conference, including Goldman Sachs Group Inc., reiterated forecasts of a significant supply shortfall. However, CRU Group expressed some skepticism regarding a substantial decline in copper prices.

John MacKenzie, CEO of Capstone Copper, highlighted how high copper prices are benefiting copper producers like his company, enabling them to leverage opportunities in Chile's Atacama region and the U.S.

Aside from market fundamentals, geopolitical factors are also influencing copper prices. Sanctions imposed by the U.S. and UK on Russian aluminum, copper, and nickel have added to the price volatility. While aluminum and nickel prices initially surged after the announcement of sanctions, they have since moderated.

These sanctions target new Russian metal deliveries to major exchanges like the LME and the Chicago Mercantile Exchange but do not restrict non-U.S. entities from purchasing Russian metals. This scenario is expected to strengthen China's position as a primary buyer of Russian commodities, particularly as the Shanghai Futures Exchange remains open to new Russian shipments.

Lisa Reisman, CEO of MetalMiner, predicts further market divergence due to these sanctions, with exchanges like the LME primarily affected by Russian-sourced aluminum while U.S. buyers resort to non-Russian sources through contracts like COMEX.

As of Friday afternoon, copper was trading at over $449 per pound, aluminum at $2,599 per metric ton, and nickel at US$18,438 per tonne, with all showing notable gains.

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