A Calm Between Two Storms as Volatility Looms

Copper Weekly is back for episode fourteen, with Mike returning fresh from leave to a market that, on the surface, has been trading quietly sideways. Beneath that calm, though, Albert digs into a fascinating stock picture, a wider look across the base metals complex, and a candid warning about volatility ahead.

In this episode:

Stocks in the Wrong Place — LME on-warrant material is heavily concentrated in Asia, yet total exchange stocks tell a very different story once you factor in the US, where around 45% of LME stock sits but only 6% of on-warrant material. Albert unpacks why headline stock numbers can mask real regional tightness, and how CME stocks near 680kt add another layer to the picture.

The Cancel-and-Rewarrant Cycle — Following last month's dramatic backwardation blowout, Albert explains the mechanics behind repeated cancelling and re-warranting of LME stock, why there's little to stop it happening again and again, and why unseen, non-exchange-deliverable stock building in the US complicates the tightness narrative further.

Copper in Context: The Wider Base Metals Picture — Tin has actually outperformed copper since October, and aluminium, zinc and nickel are all showing echoes of copper's own story, from AI-driven demand narratives to acid supply fears out of the Middle East. Albert explores what looking across the base metals complex reveals about how much of the copper rally is genuinely copper-specific.

The Month Ahead — With the tariff situation still unresolved and the LME backwardation still broad, Albert predicts continued volatility heading into September, October and beyond, and offers a blunt reminder: at over $14,000/t, copper remains more than $3,000/t above levels considered record-breaking as recently as a few months ago.

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Transcript

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SPEAKER_03 0:01

Hello and welcome to Copper Weekly, a benchmark podcast. I'm Michael Finch, Head of Strategic Initiatives, and with me we have Albert Mackenzie, Copper Analyst and Market Reporter, where each week we'll unpack what really moved the copper market and what to watch in the coming days ahead. Along the way, we'll be joined by a number of guest speakers. So kick back, relax, and enjoy this quick download on Everything Copper. Welcome back to episode 14 of Benchmarks Copper Weekly. It's good to be back.

SPEAKER_02 0:28

We had Carlos, our principal supply analyst, filling in last week, but fresh off some annual leave, I'm ready to dive into the copper markets once more. Albert joining us again. How are you doing?

SPEAKER_01 0:38

I'm doing very well, though uh jealous I'm not also in Cornwall.

SPEAKER_02 0:43

Yeah, it's well, unfortunately raining outside, but um yeah, it's it's uh nice to be somewhere different. I understand, I was trying to catch up. So reading the briefing uh that you published yesterday, um, that is my Bible uh for everything copper related. Um so going through that, it seems to be, I think it's fair to say quite a quiet week, right? It's prices trending largely sideways. Um I know there's a couple of interesting stories relating into that. So perhaps one of the things underpinning that sideways price movement is um the stock situation, which I know we're gonna get into um in a second. You've also covered off a really interesting piece about the wider base metal complex. I'd love to pick your brains on that shortly. But let's start with prices, let's start with the LME stock positions and some of the analysis you've done on that. Um, one of the things that stood out to me, Albert, was the fact that we're seeing such a gap or or the fact it's easy to misread some of the LME stocks, certainly in the US, because they make up a huge portion of total LME stocks, right? But not necessarily all of that is available. Do you just want to run us through some of that analysis you've you've you've done?

SPEAKER_01 1:53

Yeah, the um stock situation is very interesting. Um it's I think what's what I'm finding interesting is the disparity between the position of total LME stocks when compared to on-warrant stocks. So we have a huge amount of stock in the US. Um it it makes up for I I think around 45% of total LME stocks is in the US. Um but only 6% of on-warrant stocks is in the US. So basically the broadly available material is mainly in Asia, but there's a much more equal split between total stocks. Now, some of that material can be, you know, cancelled stock, um, as there is a a lot of in the in the US, can be rewarranted. You know, it's not necessarily, you know, it's still there, it still exists. Um, but yeah, it's just less readily available. Um and I think the geographies of where copper stocks generally are is very interesting. Um so if you look at, you know, CME stocks are very high at the moment. They're at sort of uh 680 KT kind of area. Around 70% of total exchange stocks are in are on the CME. Uh not and you know, add into that the fact that about half the LME stuff is in the US as well. Um you've got a lot of material in the US, um, which isn't necessarily where it needs to be. You know, China is China consumes, you know, roughly or even over half of the world's copper. Um material being in the US is necess not necessarily a good thing. Um and it just changes that dynamic. It's something we've been talking about a lot. If you look at the headline numbers, if you just go onto the LME and CME and the Shiffy and add up all those stocks, you go, oh, you know, there's a lot of stock. It's just sort of in the wrong, the wrong place. Um and and you know, that feeds into what's happened a lot over the last couple of weeks, couple of months. Um certainly two weeks ago when the the backwidation sort of exploded and we saw huge cancellations and and then rewarranting and then cancellations again. Um a lot of that was due to this perception of tightness, uh, which is yeah, interesting. Whenever you see a large amount of material on exchanges, it's interesting that there is a perception of tightness. It's just that material is in in the wrong space.

SPEAKER_02 4:21

So it's it could mask regional tightness, like you said, if you're not necessarily diving into the details here. But but also if you just look at total stock numbers, that disparity between um on warrant and cancelled stocks again can sort of mask what the underlying situation really is. If if we're only saying that I think you said six percent um it is on warrant, that certainly can be misleading if you weren't necessary to to look into the details.

SPEAKER_01 4:49

Yeah. So six percent, so what it is is it's six percent of uh on warrant stock is in the US, but 45% of on of total stock is in the US. So actually, um the global balance between cancelled and and on warrant stock is is is much more level. It's just in the US, it's very one-sided. Now, um, you know, like we saw last month, um, if a backwardation was to open up really aggressively on the LME, and backwardation is back to quite wide levels, um, and that became a problem, people could rewarrant stock or or deliver stock, um, like we saw last month. Um so you know, it's it's still relevant. It's just a slightly different, you know, cancelled stock and unwarrant stock aren't aren't the same thing. And that there's there's a nuance there. Um I think it's worth looking at all three, looking at total stock, on warrant stock and cancelled stock, and sort of going, right, where is where is the material and and and how accessible it is. Um but you know, obviously it all still exists. Um I think the other thing actually it's it's worth noting is there's a lot of stock in the US that's probably not visible at all. Um, you know, we've seen huge imports into the US, well above the growth in stock levels on both the CME and LME combined. Um some of that is because uh there are some materials that you know we we've seen this, that the US is importing a lot of material from the DRC. Not all of that is deliverable on the CME or the LME. Um and so you know, we could be seeing a build-out of of non-visible stock as well. Um and that's the thing that's really hard is is there are narratives of tightness and there are perceptions of tightness. It's how tight the market really is. And certainly there are regional tightnesses. Um, but it seems like you know the US is pretty pretty loose material-wise, you know. Um in you know, having the CME at like close to 700,000 tons is is is a lot.

SPEAKER_02 6:50

Yeah, thanks. Uh thanks, Abby. And what what's from all this, like I said, the the various different stock positions, what's the overarching implication to price right now? Because last week trading roughly sort of low 1400s, right, dollar per ton. Um how does this impact prices and how do you see that evolving moving forwards?

SPEAKER_01 7:12

Yeah, so I think to me, the first thing to note is to look back at what happened a couple of weeks ago. So as we approached the third Wednesday of the month, uh the backwordation blew out, the cash price blew out, and um, you know, everything got very expensive, it pulled up the prices. Then we saw a lot of material come back onto the exchange and we saw a lot of cancelled material rewarranted. Now that gave the market some uh, you know, if the market was being squeezed, it alleviated that, and it also gave, you know, a broader impression that, you know, maybe there was more material around than people thought, so the prices fell. We then in the immediate aftermath of the prices falling, saw a load of cancellations again and some removals again. So it the the sort of on-warrant stock and the cancelled stock sort of did a bit of a swap uh twice, you know. The the the cancelled stock fell significantly, then shot back up significantly.

SPEAKER_02 8:15

Um is there a limit to how uh many times you can rewarrant or or cancel um the stop position?

SPEAKER_01 8:28

Yeah, I mean it's it's no, it's not a naive question, it's actually quite uh um a good one. The it depends on so the LME is, you know, um, and maybe I mean if a listener wants to write in and tell me that that uh they understand the situation better than me, maybe this is a good time for that. But the LME basically doesn't operate any of its own warehouses. Um other companies, uh people like Access World and um other companies like that operate the warehouses. And those warehouses might have different rules. Um companies, I understand, have rules about rewarranting and maybe there's like a small fine or something like that. But actually, I was talking to a warrants trader the other day, um, which is a very undercovered, uh undercovered by the media, certainly. Little part of the market is is these people buying and selling warrants. They're very always very in the know about what's going on with across the base metal sector. Um, and they were saying that, you know, obviously if if some of these warehouses want people to put material in their warehouses, they they can you know change those rules and the fines might be not very significant. So uh ultimately there is nothing stopping you cancelling, decancelling, and recancelling stuff. There might be some fines, there might be some you know uh fees here and there, but but realistically you can kind of do it as much as you want. Certainly in other markets, um, you see it more in lead and and and zinc and alley, where the the underlying price of those commodities on the LME is lower than the the copper price, so you don't need as much capital to play around in those markets. You do see these broad fluctuations where people will deliver like 20,000 tonnes and then cancel it or cancel 20,000 tonnes and then rewarrant it. Um and obviously that can have implications for the price and and and it moves moves things around like that. Um so no, not a not a naive question at all. Very, very good one that's uh doesn't have a very specific answer, but I hope hopefully I've given you enough information with that one.

SPEAKER_02 10:31

Yeah, no, that that that's great, and it's good for yeah, good for my broader understanding in something that certainly is uh perhaps, like you said, a an overlooked part um of the picture, right? You've obviously alluded to or we started discussing the the wider base metal complex. That's probably a really nice segue to to jump into that part. You've done some great analysis this week looking at price movement for respective metals. You know, how does that actually compare to copper? Because we're we're sat here week in, week out saying, you know, copper hitting another you know new all-time high, uh, whether it's the the three-month or cash, um, and it's performing incredibly well. I don't think anyone's gonna you know say differently, but but some base metals, I think maybe one at least, has performed better and the others are are seemingly doing incredibly well. And I'm talking from a price increase perspective here, um, and they've performed you know brilliantly this year as well. So do you just want to walk us through some of that analysis in terms of you know the wider complex and how that performs versus copper?

SPEAKER_01 11:31

Yeah, I think that's I think it was an interesting thing to cover because it puts we live in our own little boxes sometimes, and I think certainly, you know, my old role I used to cover zinc and lead and actually write about the LME quite a lot, so I cover all the base metals. And covering copper on its own, you can get sort of caught up in the hype, maybe. You know, we're like, God, prices are really high this year. But you know, tin has outperformed copper in the last couple of months, um, certainly since um October. I I sort of index everything from October because I know a number of the metals moved quite heavily in in the last quarter of last year. Um and you know, lots of the narratives are the same. Um so tin is used in soldering, so it's very important for uh motherboards and and uh AI demand as well. So you have that very similar narrative than you than you do with copper. Um so we've sort of seen tin shoot up. And I think the other thing that was interesting as I was sort of researching this, I'm not as, you know, I'm obviously not as much of an expert in in tin as I am in copper. Well uh if if I am an expert in copper, that is, obviously. Um but I did use to cover tin a bit. And it was interesting seeing that, you know, I I I read a great article by uh Andy Holm at Reuters, and it went over some of the the things um impacting the tin market, and it highlighted that actually some of the supply concerns weren't as big as they had been. And potentially the the surplus and and deficit, the supply-demand balance wasn't as tight as the price shooting up sort of 50% would make you think. And that to me is kind of like copper in a way. You know, we've often spoken about how AI narratives and and certain specific topics have been pumping this metal higher, despite the fundamentals not necessarily feeding into that. Um elsewhere, you know, we've seen Taurus money. I think you see tourist money in tin. Um I heard from from from some contacts on the Ali side that you're seeing tourist money come into the Alley space as well, because you know, the the conflict in the Middle East is, you know, there's some really big aluminium smelters. Um Emirates Global EGA, Emirates Global Aluminium. Um again, someone might correct me if I've made that company, uh made the acronym up. I think it's EGA. Um they had a smelter in the region. There's other smelters in the region, and there were concerns that they'd be impacted, but maybe the impacts weren't as big, but you still see that money flowing in and and you know it still seems to be being impacted in the same way that copper is. You know, we were worried about what acid was doing to copper production in the DLC and in Chile. You know, those concerns weren't necessarily um founded in the end, but you know, it's the same stories impacting lots of these metals. I mean, maybe the best example for that is also nickel, um, lots of H-PAL production. Uh, you know, HPAL's a huge part of the nickel market, um, and that uses a huge amount of acid. Um, and so we had those fits feeding in. And then lastly, I'd say with with zinc, again, you've got you know, similar narrative on the tightness of concentrate, um, as you see in copper, and it's starting to impact the refined market in zinc a little bit more. You've also got that Iran narrative, because you know, Iran's a zinc mining nation, um, and and it's you know, that material's not leaving um the region as as easily as it was. Um, I think it kind of brought me back to Earth looking at those things because I'm like, why is copper so high? And then you look at all the other markets, and they're all really high as well, and and maybe a part of that is is there just a lot of money flowing around? Um, is I was talking to one of my colleagues today about debasement and and sort of are is the value of things just going up? Is there a you know, you know, looking at copper prices compared to inflation and things like that? And and I guess those narratives feed across the sector. Um and also the macro concerns, you know, if if if the macro situation's doing badly and that's impacting the copper price, it'll impact the zinc price as well. Because you know, 70% of zinc demands going into um steel. So you kind of see lots of this, lots of similar themes feed in, and they're all priced in dollars as well. So if the dollar's moving anything, and and we always talk about the dollar as a big influence. So um it wasn't necessarily one of those things I did and found an amazing conclusion from. Um, but more it's interesting, you know, if you're really looking at the copper market at the moment to look at the other markets and see what can be learned from from those and and and and see what's happening there.

SPEAKER_02 16:03

Agree, some some huge similarities to to how those markets behave and some certainly some lots of common ground there. Some nuances, of course, for for sure, certainly on the supply side, um, perhaps on the policy side as well. Um, but overall, um, yeah, really interesting piece. And again, I think it just puts what we do on a daily basis into a bit more context uh as well. Um I'm not so certain that you know that this uh doesn't mean there's a correction on the horizon. Uh I think you know that that that could or may happen. Um it'd be interesting to see how things evolve. And maybe with that, Albert, as a as a closing comment, thinking ahead now to the month of September, um, what's on your radar if we were just to look ahead? Are there any major um big supply stories coming up? Are there any major developments regarding the the US tariff, for example? What's on what's on your radar?

SPEAKER_01 16:55

I'm really glad you asked that question because normally I fluff around when you say what do you think is going to happen in the coming weeks because I don't like forecasting things. I'm I'm an analyst, so maybe I should like forecasting things, but I don't like to give you know absolute certainty or clarity on things. I I think it's best to deal with nuance with stuff. However, we saw a huge blowout in the backwardation around the third Wednesday of the month on the LME. Nothing has changed since that. You know um we saw the deliveries and and that quelled the the situation for a bit, but the backwardation is broad again. Um and I think as we approach the third Wednesday of September, I think we could see more volatility. I don't see the things that concerned the market last month are still there. Maybe there is a slight alleviation of that concern because clearly there was material available when it was needed. So that might change some people's perspective on that. Um because, you know, the the back relation blew out and people had material to deliver to close those positions. So clearly maybe the market wasn't as tight as some people might have feared. But I think we'll come to the the third Wednesday of this month and we'll see volatility again. Now, whether that is you know, we saw the Tom Next on on uh last Thursda Wednesday around that time, we saw the Tom Next blowout and we saw the cash of three blowout. I suspect we'll see that again. Um I suspect we'll see the cash price push up and and a few other things. I I I think until this tariff situation is resolved, um, we're gonna see volatility. You know, the the last week or so the copper prices have been very flat um because we're in a you know, it's it's I was gonna say it's kind of like a calm before the storm, but it's like a calm between two storms because nothing has been resolved. Uh we don't know what's gonna happen with the tariff. There's still material flowing to the US. Um, there's still not a great amount of LME stock available, readily available in the places it needs to be. Um the backwidation is still broad. Um, I reckon we'll we'll we'll see, you know, if not in September, but maybe in October, November, I reckon we'll continue to see volatility on the LME. I think I would ask anyone listening to this, especially anyone who's got interested in copper in the last six months, to remember that $14,000 a ton is a hell of a lot for copper. Um, you know, the record price was I think $11,104 fifty until November or until even December. You know, we're we're $3,000, over $3,000 a ton higher than all-time record prices from from a couple of months ago or several months ago. Um and the the things that have caused the prices to be higher, the things that have caused the backwardation, the things that have caused the tightness on the LME, none of those have changed. So I just anticipate volatility. Um whether that yeah, whether that's big cancellations and rewarrantings or big rewarrantings and cancellations or deliveries and removals, I just, you know, uh I suspect it will be an exciting month, and I expect it will be an exciting month every month until we have clarity on the Trump situation. And I suspect, you know, potentially it gets worse and worse every time it cycles round because, you know, every month the the apparent the feeling in the market is tighter. The market is tighter because of that material flowing to the US. And every time it comes back round again, it's even tighter than the time before. Um and people are more cognizant of it. So, you know, I expect I I use the word chaos, and my colleague told me when you're talking about financial markets the term is volatility, but I expect chaos.

SPEAKER_02 20:38

The calm between two storms, uh, I think also very uh aptly sums it all up. But um, Albert, some amazing insights and some some bold comments, and I'm gonna hold you to some of that. And we we can't.

SPEAKER_00 20:49

Yeah, I was gonna say it's only they're only good comments if people listen to this in three weeks' time and go, he was correct, rather than listen to it three weeks' time and go, that guy's an idiot.

SPEAKER_02 20:59

We can we can we can review and look back, but um, you know, some really interesting insights and um a lot to unpack in future editions as well. So let's let's keep tabs on it. But for now, let's uh let's bring things to a close. So I want to thank you once again, Albert, for all your comments is normal. Um we look forward to hearing from you next week. Uh, but for now that is all for this episode of Benchmarks Copper Weekly. Thanks for listening, and we'll see you next time.

SPEAKER_03 21:23

Thanks. If you found the show useful, follow us on Spotify so you don't miss next week's episode. For deeper analysis and data on copper supply, demand, and prices, visit benchmarkminerals.com forward slash copper. Thanks for listening and join us next week as we break down the latest moves in the copper market. Bye for now.