Super Contango Trading Hits Highest Since 2006
The copper price (spot) plummeted by 11% within a month, causing the gap with futures prices to widen to the largest extent in 17 years, resulting in a 'super-contango' phenomenon. The sharp drop in copper prices is attributed to recession concerns in major countries including the United States and the weak reopening effect in China.
According to the London Metal Exchange (LME) on the 23rd (local time), the spot copper price was traded at $66 lower than the 3-month forward price as of the previous day. Foreign media reported that the discount of spot prices compared to futures was the largest since 2006, describing the appearance of 'super-contango' in the copper market. Futures prices are generally higher than spot prices. However, when market demand sharply decreases and inventories accumulate, spot prices plunge, widening the gap with futures prices, a trend known as 'super-contango.'
Weakened global demand lowered copper prices and widened the gap with futures prices. From the fourth quarter of last year to January this year, copper prices rose as expectations for economic recovery grew when China abandoned its 'zero-COVID' policy. However, from February, the 'no landing' forecast that the U.S. economy would continue to soar without recession or slowdown was broken, and after the Chinese National People's Congress and Chinese People's Political Consultative Conference in March, expectations for economic stimulus by Chinese authorities also retreated, increasing the drop in copper prices.
Foreign media evaluated, "In the U.S. and Europe, industrial activity began to sharply slow down due to the high-intensity tightening that started last year, and with China's recovery momentum weakening, copper inventories stored at the LME have significantly increased, acting as a short-term burden on copper prices." Natalie Scottgray, a non-ferrous metals analyst at global consulting firm StoneX, analyzed, "Copper prices have started to move due to signs of weak demand," adding, "This is evidence that demand in Western countries such as the U.S. and Europe is taking a bigger hit than expected."
At the LME, copper prices have fallen 11% in the past month. Copper prices, which once hovered around $9,500 per ton at the beginning of the year, recently dropped to the low $8,000s per ton, marking the lowest level in six months since November last year. Goldman Sachs lowered its copper price forecast from $9,750 to $8,698 per ton on the 21st, stating it reflects recession expectations. Al Munro, a metals strategist at London-based financial investment information firm Marex, said, "I have never seen such a terrible market in recent years."
The 2% rise in the dollar's value against the currencies of the six major countries since early this month also burdened Chinese importers, driving copper prices down. At the same time, supply disruptions in Latin America, including Chile?the world's largest copper producing country?have eased, and the resolution of a tax dispute related to the Chinese-owned Tenke Fungurume mine in Congo, Africa, also contributed to increased supply, influencing copper price changes.
However, some optimistic forecasts have emerged. The expectation of increased demand for copper, considered a key material in the paradigm shift to eco-friendly energy such as electric vehicles, has not disappeared. Bank of America stated on the 22nd that it maintains its previous forecast that copper prices will reach $10,000 per ton by the end of the year as China massively increases spending on power grids using superconducting metals.
Meanwhile, copper, widely used across industries such as manufacturing and construction, is called 'Doctor Copper' because it is said to lead global economic trends.
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