Copper has surged to its highest-ever level, extending a powerful, months-long rally driven by financial investors who’ve piled into the market in anticipation of deepening supply shortages.

Futures on the London Metal Exchange jumped more than 4% in early Monday trading, taking copper past $11 000/t for the first time. The market has seen many optimistic forecasts, and BHP Group’s wants to buy rival Anglo American chiefly for its copper mines.

Several developments in 2024 have emboldened copper bulls and drawn in a rising flow of speculative money. Tight supply of copper ore fuelled talk of output cuts by smelters, while a short squeeze on the New York futures market this month triggered a global rush to secure the metal.

“That has taken prices to another level and it’s very difficult to call a top in this environment,” Craig Lang, principal analyst at researcher CRU Group, said by phone from Singapore. “Commodities markets do tend to overshoot.”

Investors, traders and mining executives have warned for years that the world faced a critical shortfall of copper amid ballooning demand in green industries — from electric vehicles to renewables infrastructure. Commodities veteran Jeff Currie said last week that copper was the best long trade he has ever seen.

LME copper was up 3% to $10 992.50/t by 12.04pm Shanghai time on Monday.

Prices have gained more than a quarter since the start of this year, spearheading across-the-board gains for major industrial metals. Gold has also rallied to a record with copper, with both metals getting support from optimism that the US Federal Reserve will start cutting interest rates this year.

Ahead of reality

Many participants in the physical trade have warned that copper prices were running ahead of reality. Demand remains relatively tepid — especially in top buyer China, where inventory levels remain high.

A series of setbacks at major mines are fueling fears that a much-anticipated production shortfall will arrive earlier than expected. Smelter treatment fees — a gauge of tightness in the ore market — plunged below zero in April.

Read: Data centres could add a million tons to copper demand by 2030

And the short squeeze on the Comex exchange in New York drove prices there to an unprecedented premium over the LME. That triggered a rush to reroute metal supplies to the US, meaning less metal available elsewhere.

“The Comex short squeeze is rediverting copper to the US and tightening supplies in other regions,” Gong Ming, an analyst with Jinrui Futures, said by phone. “The Chinese market is expected to see inventories withdrawal soon with exports rising.” –– (c) 2024 Bloomberg LP