Propelled by robust buying from Chinese investors, copper prices have recorded their largest single-day surge in sixteen years, as the commodities market experiences a rare, historic frenzy. On Thursday afternoon, copper prices skyrocketed by as much as 11%, breaching the historic high of $14,500 per ton for the first time, before undergoing a sharp correction from those elevated levels. Since the beginning of December, copper prices have accumulated a gain of approximately 21%.
This explosive rally coincides with the US dollar's decline to its lowest point in over four years, prompting Chinese investors to pivot en masse towards the commodities market, driving prices for various metals from tin to silver to new historic peaks. This wave of buying, dominated by Chinese traders, ignited the market around 2:30 AM London time, with copper prices on the London Metal Exchange (LME) climbing over 5% in less than an hour, and an index of six major base metals closing at a record high. This dramatic market movement has left seasoned professionals astonished. According to Bloomberg, Mark Thompson, a former Trafigura Group trader with three decades of experience in copper markets, stated, "You might only see a market like this once in a lifetime. We are just one supply disruption away from $20,000 copper."
Chinese capital is driving this "historic" market movement, creating massive waves in the commodities sphere and fueling a surge in trading volume on the Shanghai Futures Exchange (SHFE). As of last week, January had already set a record as the busiest month ever for the six main base metals on the SHFE, with Thursday's single-day trading volume for copper reaching the second-highest level in history. This rally exhibits distinct timing characteristics. The initial surge on the LME occurred during the hours when Chinese traders dominate capital flows. Eric Liu, Deputy General Manager of ASK Resources, noted, "Commodities are rising in rotation. Copper prices had been hovering around $13,000 for some time, and capital had been building up for a while."
Despite the afternoon correction on Thursday, copper ultimately closed 4.1% higher on the LME at $13,618 per ton. Its intraday volatility marked the largest swing recorded since 2009. Meanwhile, after closing 5.8% higher on Thursday at 109,110 yuan on the SHFE, copper futures touched 114,000 yuan in evening trading before paring those gains.
This week's surge in metal prices is intricately linked to the macroeconomic environment. The US dollar index falling to a multi-year low has made dollar-denominated commodities more attractive to a broader range of buyers. Furthermore, signals from former President Trump indicating a lack of concern about a weaker dollar have further encouraged investors to sell US Treasuries in favor of commodities. Tom Price, Senior Commodity Analyst at Panmery Liberum, pointed out, "Out of concern for further dollar weakness, prudent investors are repatriating capital."
Additionally, expectations surrounding Federal Reserve policy have added fuel to the rally. While keeping borrowing costs unchanged on Wednesday, Fed Chair Powell spoke of a "significant improvement" in the US economic outlook. Market speculation that the next Fed Chair could be more dovish than Powell, coupled with escalating geopolitical tensions due to the Trump administration's more assertive foreign policy, are boosting demand for real assets.
For a long time, investors have been bullish on copper's critical role in the energy transition and the growth of data centers. Tesla's plan to invest $200 billion this year to shift resources towards robotics and artificial intelligence (AI) further strengthens this investment thesis, with copper, aluminum, and tin all seen as primary beneficiaries. Chi Kai, Chief Investment Officer at Shanghai Cosine Capital Management Partnership, said, "The expectation for rising copper prices remains unchanged under the cycle of the US maintaining interest rate cuts. As long as the US continues to push forward with AI, chips, and power grid construction, there is no clear ceiling on how high prices can go."
Despite the soaring prices, underlying market fundamentals are not without concerns. The current rally appears to contradict signs of weak physical demand. Simultaneously, the LME market is showing a widening contango structure, suggesting that supply remains ample. In response to speculative fervor, the SHFE has taken measures to cool the market, including raising margin requirements for some contracts and imposing trading restrictions on specific clients in the tin and silver markets. On Thursday, the exchange reported a client for violating abnormal trading rules and urged investors to "further enhance risk awareness, invest rationally, and jointly maintain stable market operations." Warning voices have also emerged. Trina Chen, Co-Head of China Equities at Goldman Sachs Group, warned in a Bloomberg Television interview that the stunning gains in metal prices may have run ahead of real demand, and the market could face a "technical adjustment" as physical buyers in China balk at high prices.
