(Oct 22): Copper slid as inventories on the London Metal Exchange (LME) surged for a second day and a selloff in AI-related stocks sapped risk appetite across global markets.

The red metal dropped as much as 2% to a low of US$14,076 (RM57,414) a tonne, tracking losses in equities markets after earnings from major tech companies failed to reassure investors about the durability of the artificial intelligence (AI) trade. Copper has benefitted from that boom because of its use in data centers and power infrastructure.

The metal’s retreat from last month’s record high of US$14,875 a tonne has also been fuelled by doubts over whether the US will impose a tariff on refined copper as President Donald Trump approaches the midpoint of his second term. The prospect of a levy has drawn vast amounts of the metal into Comex exchange warehouses in the US this year, squeezing supplies on the LME.

Those supply constraints have caused spot copper prices to rally above futures over recent weeks, in a condition known as backwardation. 

But on-warrant inventories have surged by 70,100 tonnes on the LME over the past two days, with the backwardation creating an incentive for stockholders to deliver metal against short positions, rather than rolling those hedges forward at a loss.

The bulk of the inflows were seen in the US, where futures prices on Comex have fallen to trade near parity with the LME over recent sessions. The collapse in the spread has come into sharp focus in the copper market, because it reduces the incentive to ship metal into the US and deliver it into Comex warehouses. 

Even so, traders including Hartree Partners LP have built large positions in nearby LME contracts that could prove lucrative if tariffs are imposed, Bloomberg reported this week. If import duties are announced, traders could make a profit by buying near-dated LME contracts, and then withdrawing metal from LME warehouses in the US and delivering it against New York futures contracts once the new duties are implemented. 

“There is still a great deal of uncertainty around next year’s copper supply-demand balance,” said Zhenting Zhou, a trader at Hangzhou Chenglian Industrial Co. “Mine supply should improve, US import demand is likely to ease, and China’s scrap-copper availability should also recover. There isn’t much upside risk for copper,” he said.

Still, some concerns remain around supply disruptions. Workers at Canada’s largest copper mine, Teck Resources Ltd’s Highland Valley Copper operation, are threatening to strike as early as Saturday, in the latest sign of labour tensions prompted by near-record prices that have emboldened employees to seek a greater share of profits.

Copper was 1.8% lower at US$14,105.50 a tonne on the LME as of 9.34am local time. Aluminium declined 1% to US$3,023.50, while nickel gave up 0.6% after surging 3.7% in the prior session on the prospect of coordinated output cuts by Chinese producers in Indonesia.

Iron ore fell as much as 1.7% to US$89.45 a tonne in Singapore, the lowest in almost two years.

Uploaded by Felyx Teoh