Source: Zhitong Finance

The price of the New York copper futures market soared to a record high after experiencing a round of shorting. On the New York Mercantile Exchange (Comex), the price of copper futures for July delivery rose sharply by 3.6% to $5.0695 per pound on Wednesday. This price not only broke the record of $5.0395 per pound set in March 2022, but also had a premium of more than $1,000 per ton compared to the London Metal Exchange (LME) benchmark contract. This upward trend in prices has continued to show in recent trading days, with trading mainly focused on the July contract.

Zhang Jia, head of trading at Shanghai Dongwu Jiuying Investment Management Co., Ltd., pointed out in a telephone interview that part of the price squeeze was due to traders carrying out arbitrage operations between Comex and the Shanghai Futures Exchange.

The highest price of Comex's copper futures reached $11,176 per ton. This price was significantly higher than LME's benchmark contract, reflecting the New York market's spot premium phenomenon and indicating the current tight supply. Specifically, the price of the July contract on Wednesday was nearly 30 cents/pound higher than the September contract.

For investors holding short positions in New York copper futures, this price increase could result in significant losses as they face pressure to liquidate their positions before the contract expires. This tense market situation has prompted traders to eagerly seek ways to transfer copper from other regions to the US Mercantile Exchange warehouses.

Michael Cuoco, head of sales for metals and commodities hedge funds at StoneX Group, said that futures traders with long positions may choose to roll over to benefit from current spot premiums.

He points out, “These are all very attractive values. We anticipate that participants will choose to either make a profit settlement or carry out a rollover operation.”

According to information, since the beginning of January, copper prices have risen close to 20%, and the price has soared all the way up ignoring typical indicators of weak demand, especially in China. Part of the reason is that investors believe that mine supply is tight and will cause metal shortages as soon as this year.

“Investor pricing exceeds recent cyclical uncertainty and weakness in physical demand indicators,” Citigroup analysts said in an email note Monday. The bank expects copper prices to climb to $10.5 million per tonne in the near future, given the “imminent” supply situation.

It is worth mentioning that previously, some analysts had warned that this industrial metal had already entered the overbought region.

Among them, John Caruso, senior market strategist at RJO Futures, said that although he “has a firm and positive attitude” about price action, he also “completely” admits that copper prices are currently overbought. He noted that according to the Commodity Futures Trading Commission's Trader Commitment Report, net speculative long positions are currently close to record levels — currently at 69,000, compared to 87,000 in 2021. Highly speculative positions may be a reverse indicator.

He said he will take a cautious approach here, and bulls should consider “raising the stop-loss point to protect profits. I would recommend that new bulls pay attention to 'overcrowd' and clearly recommend that bears not try to predict the top.” A stop-loss order is an order at which a price is set to exit a position to minimize losses.