Key Moments
- Copper prices have almost completely reversed their decline following the Iran war, even after substantial fund liquidations and softer risk assets.
- TD Securities flags unprecedented tightness in unencumbered Copper inventories, citing supply constraints across multiple regions and uses.
- Commodity Trading Advisors are expected to stay net buyers near term, with algorithmic strategies potentially deploying up to +13% of maximum position size if the price recovery continues.
Strategist Highlights Resilient Copper Prices
TD Securities’ Senior Commodity Strategist Daniel Ghali reports that Copper prices have almost entirely reversed the declines seen around the Iran war, despite heavy liquidations by funds and broader weakness in risk assets. He characterizes this rebound as being underpinned by firming commodity demand and increasingly evident hoarding activity.
Hoarding Behavior and Geopolitical Backdrop
Ghali underscores that demand has remained robust in the aftermath of the Iran war. He links this strength to hoarding patterns similar to those observed in past geopolitical disruptions.
“Copper prices have nearly fully recovered from the war, despite significant investor liquidations.”
“Under the hood, we have argued that commodity demand has continued to firm in the wake of the war in Iran, pointing to hoarding behavior akin to those seen in analogous geopolitical conflicts such as Russia-Ukraine.”
Unencumbered Inventories at “Unprecedented” Lows
A central element of Ghali’s thesis is the extreme tightness in freely available Copper stocks. He stresses that unencumbered inventories are exceptionally scarce, reflecting a combination of structural and logistical constraints.
“Most importantly, we think that unencumbered copper inventories are unprecedentedly scarce, owing to (1) metal locked up from consumption in China’s SRB [State Reserves Bureau]; (2) landlocked US metal and (3) accounting for minimum working inventories.”
| Driver of Scarce Unencumbered Inventories | Description |
|---|---|
| China’s SRB consumption | Metal tied up in the State Reserves Bureau, reducing available supply to the broader market |
| Landlocked US metal | Supply constrained by location and logistics, limiting access for global buyers |
| Minimum working inventories | Operational stock levels that cannot be easily drawn down without disrupting supply chains |
CTA Positioning and Algorithmic Flows
Against this backdrop of scarcity, Ghali expects systematic trading strategies to support the market rather than weigh on it in the near term. He notes that algorithmic Commodity Trading Advisors are unlikely to be net sellers of Copper under typical price scenarios over the coming week.
“Looking forward, algos will not sell copper in any reasonable scenario for prices over the coming week, but a continued recovery in prices will catalyze buying programs totaling up to +13% of max size.”
Outlook: Market Edging Toward a “Copper Crunch”
With inventories constrained and systematic strategies positioned to add length on further price gains, Ghali characterizes the market as moving closer to a potential supply squeeze.
“Copper markets are inching towards a copper crunch.”
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