Copper's rapid climb past the $14,000 per metric ton mark has placed investors at a crossroads about whether to follow the rally higher or step aside. On Thursday, benchmark copper on the London Metal Exchange rose 11% to a record $14,527.50 a ton, a jump market participants attribute to heavy speculative activity and momentum-fuelled buying.
Traders noted the move was the largest single-day gain for LME copper since November 2008, with one key dynamic cited as short-covering adding to the upside pressure.
Bearish positions left vulnerable
Investors holding bearish views were caught off guard by the strength of the rally. Many had anticipated a pullback on the basis that elevated prices were unsustainable in the face of ample inventories and subdued physical demand. The surging market, however, removed that expected correction, leaving those positions exposed.
At the same time, other market participants remain constructive on copper, with a number of funds seeking to secure physical metal as a hedge against a softer U.S. dollar and rising geopolitical tensions. That demand from funds contrasts with indicators of dwindling industrial consumption at the current price levels.
Volatility risk as some institutions retreat
Market structure could shift if larger institutions start to pull back. "When things go exponential, a lot of the banks start to withdraw due to their risk tolerance. The volatility just makes it brutal to try and trade it," said Dan Smith, managing director at Commodity Market Analytics. He added that the rapid price action creates nervousness about short-term direction and suggests potential demand disruption, implying the move may not be sustainable.
With fewer participants willing to provide liquidity, the market becomes thinner and more susceptible to sharp moves on relatively modest flows.
Physical demand in China lags
In China, the world's largest metals consumer and a key arena for the recent rally, the appetite for physical copper has been weak. Spot market buying in China has declined such that the price Chinese consumers pay on the spot market now sits at a 170 yuan a ton discount to the Shanghai Futures Exchange futures price, which itself has risen to record levels. That compares with a 200 yuan premium on January 15, underscoring a deterioration in spot demand relative to futures.
An anonymous trading source commented on current price levels, saying: "I don’t believe that $14,000 is sustainable at this juncture and while you never know how high it might go I think a correction is on the way."
Calendar factors and historical comparison
Market participants highlighted the upcoming Lunar New Year break in China as a possible trigger for a correction. Alastair Munro, senior base metals strategist at broker Marex, noted that the holiday could remove some of the money flows that have supported the rally. He compared the present trajectory to the market moves seen in 2004-2006 during China’s industrial expansion and observed that, historically, the market saw a retracement from 6th Feb 2006 following similar momentum. Munro pointed to the prospect that month-end flows and the holiday pause could produce a comparable interruption to the current advance.
For the Chinese New Year, the Shanghai Futures Exchange will have no evening session on February 13 and will remain closed until resuming trading on February 24, a scheduled hiatus that could influence near-term liquidity.
Outlook and investor choices
The confluence of speculative positioning, short-covering and thinning participation poses a dilemma for investors: join a rally that has produced record prices in a compressed time frame, or hold back in anticipation of a corrective phase driven by weak physical demand and reduced liquidity. The market’s path in the near term is likely to be shaped by how these opposing forces—speculative flows and fundamental consumption trends—interact as the Lunar New Year break and month-end flows arrive.