Copper Rally Tests $4.50 as Supply Fears Resurface

Copper futures pushed above $4.40 a pound Friday, the highest level in three weeks, as a string of mine disruptions in Chile and Peru tightened near-term supply expectations. The red metal has now recovered roughly half of the ground it lost during the April selloff, when a stronger dollar and fading Chinese demand optimism knocked prices from the $4.70 peak.

The trigger was a series of production setbacks. Codelco, the state-owned Chilean miner, said Thursday that maintenance work at its El Teniente mine would cut output by an estimated 15,000 tonnes in the current quarter. Hours later, workers at Peru's Las Bambas copper mine voted to strike over wage negotiations, raising the risk of a full shutdown at one of the world's largest open-pit operations. Together, the two events removed roughly 25,000 tonnes of expected supply from the spot market, traders said.

London Metal Exchange warehouse inventories have already been sliding. Registered copper stocks fell for a seventh straight session Friday, dropping to 112,000 tonnes, the lowest since February. That drawdown has accelerated in recent weeks as Chinese smelters, facing tighter scrap import rules, have stepped up purchases of refined metal from LME warehouses. The combination of falling inventories and mine disruptions has flipped the physical market into backwardation for the first time since March, with cash copper trading at a $12 premium over the three-month contract.

The rally has also drawn speculative interest. Managed money net long positions on Comex copper futures rose by 8,200 contracts in the week through Tuesday, the largest weekly increase in four months, according to CFTC data. That pushed net longs to 62,000 contracts, still well below the 95,000 peak hit in January but enough to suggest momentum traders are re-entering the trade.

Not everyone is convinced the rally has legs. The macro backdrop remains mixed. China's property sector, which accounts for roughly a quarter of global copper demand, has shown no signs of a sustained recovery. New home sales in the country's top 30 cities fell 18% year-on-year in May, according to data from the China Index Academy. And the Federal Reserve's higher-for-longer rate stance continues to strengthen the dollar, which typically weighs on dollar-denominated commodities.

Still, the supply-side story is the dominant force for now. Goldman Sachs analysts said in a note Friday that the copper market is on track for a 200,000-tonne deficit this year, the third consecutive annual shortfall. They cited mine disruptions, smelter maintenance, and a lack of new greenfield projects as structural constraints that will keep prices elevated through 2026.

For traders watching the $4.50 level, the next catalyst is the LME Week dinner in London next week, where major producers and consumers will meet. Any signals on Chinese restocking plans or mine restart timelines could determine whether copper breaks through resistance or stalls. The commodities analysis page tracks the key levels and positioning data.

A close above $4.50 would open the path to the January high near $4.70. A failure to hold $4.30, by contrast, would suggest the rally was purely speculative and vulnerable to a sharp reversal. The next few trading sessions will test which scenario plays out.