Copper's just made the headlines again with the London Metal Exchange price punching out an all-time nominal high of $11,200 per metric ton on Wednesday.
Macro and micro drivers have both turned price-positive and fund managers have jumped back in on the long side, adding financial potency to the bull cocktail.
Investment fund long positioning on the LME copper contract has risen to levels last seen in March, just before U.S. President Donald Trump's "Liberation Day" tariff tsunami.
The threat of a full-blown trade war between the United States and China, the world's largest copper consumer, was decidedly bad news for copper. The partial truce just agreed by Trump and Chinese President Xi Jinping lifts some of the macro weight.
While copper's demand prospects brighten, its supply challenges accumulate. A string of copper mine disasters this year is likely to result in a refined metal shortfall in 2026, according to the International Copper Study Group.
Add inventory dislocation to the mix and it's not hard to understand why Doctor Copper is back on the investment radar. For now.
FUNDS RETURN
Fund managers gave copper a wide berth after March as the market was buffeted by tariff turbulence, both general and specific in the form of a possible U.S. import tariff on refined copper.
Investor positioning on the CME's U.S. copper contract, which was at the heart of the tariff storm, shrank to decade lows in August. Volumes and open interest tumbled as investors rotated into red-hot precious metals markets.
LME copper volumes benefited from the disruption to global physical supply-chains but the rise in industrial activity masked an equally sharp drop in fund participation.
All that changed in August as the LME price started building upwards momentum against a steady backbeat of production downgrades from some of the world's largest mines,
Funds have boosted long positions from an August low of 55,325 contracts to 87,152 contracts. Short positions have been simultaneously cut, resulting in a sharp shift, equivalent to over a million metric tons, in investor positioning to the long side.
If fund money is returning to the London market, it is almost certainly also doing so on the CME contract but it's hard to say since the weekly Commitments of Traders Report has been suspended due to the government shutdown.
The last available positioning picture, dating from the end of September, showed funds tentatively re-entering the market on the long side after the implosion of the U.S. premium in July, when the Trump administration deferred a decision on refined copper tariffs until next year.
Open interest on the CME contract has since surged to four-month highs in tandem with a recovering price, suggesting more investors have returned to the fray.
DISLOCATION
Investor short positioning on the LME copper contract has almost halved since April.
The recent rally will no doubt have played its part in forcing momentum-based funds to cover back shorts.
But low LME stocks are also a powerful disincentive to run a short copper position, as someone found out earlier this month when the cash premium over three-month metal briefly flared out to $224 per ton.
That spread has since flipped back to contango but at $25 per ton, it's a far cry from the $90 plus levels seen as recently as August.
That's because the unwind of the U.S. tariff trade has got stuck.
Even though any possible U.S. import tariff on refined metal has been pushed back to July next year at the earliest, the CME spot price is still trading at a hefty $300-per ton premium over the LME price and higher still on a forward basis.
The import arbitrage is still open and the United States continues to draw in copper, Richard Holtum, chief executive of trade house Trafigura, told the LME Week Seminar earlier this month.
The pace of shipments to U.S. ports has likely slowed but the knock-on effect is continued downward pressure on LME stocks.
A burst of Chinese deliveries to LME warehouses in July lifted LME inventory to 159,000 tons but registered stocks have since dropped back to just 135,350 tons with only a small 30,477-ton extra cushion in off-warrant storage.
The China tap seems to have been turned off for now. Exports of refined copper surged to 118,400 tons in July, the second highest monthly tally this century, but September's count was a lowly 26,400 tons, much of it destined for Thailand and Vietnam, neither of which hosts LME warehouses.
TURBULENCE AHEAD
The resilience of the CME premium over the LME international price attests to the continued influence of tariffs in the copper price mix.
That may yet come back to haunt the funds which have just re-entered the market because the current alignment of macro and micro could still easily be blown off course in today's ever-shifting trade landscape.
Markets, including copper, are not sure whether what Trump described as his "amazing" meeting with the China's Xi marks anything more than a tactical pause in hostilities.
The copper price was back below $11,000 per ton on Thursday morning as traders digested the latest turn of the tariff roulette wheel.
Copper's micro narrative may be compellingly bullish, but the macro outlook remains highly unpredictable. This year's tariff price turbulence may be far from over.
Andy Home is a Reuters columnist. The opinions expressed are his own
