Copper prices have risen all week, buoyed by surging investor confidence amidst ongoing concerns over tight supply conditions for the metal.

The London Metal Exchange (LME) saw copper prices climb as much as 4.4 per cent this week from Monday’s level.

'This is the second secular bull market that we’ve seen in copper this century, and it’s just starting now,” said Max Layton, global head of commodities research at Citi. “Investors have been holding off [but] they just can’t afford to hold off anymore. A very large number of [them] have a small to moderate copper position now that they didn’t have six to eight weeks ago.”

The copper market’s fundamentals are strong, driven by both supply challenges and cyclical global economic improvements. Yet, the current surge is also influenced by significant financial inflows, both discretionary and momentum-driven, suggesting the price may now be outpacing the underlying market conditions.

According to recent LME data, hedge funds have escalated their net long positions in copper to levels not seen since February 2021. The market's momentum is bolstered by a recovery in China's industrial sector and supply disruptions at key mines, which have squeezed margins at Chinese processing plants. These plants account for over half the global refined copper output and are now facing the possibility of reduced production.

During this week’s CRU World Copper Conference in Santiago, Chile, market analysts issued optimistic projections for the sector. Notably, Goldman Sachs Group Inc. reiterated its forecast for a significant supply shortfall, while CRU Group expressed skepticism about any substantial decline in copper prices.

John MacKenzie, the chief executive officer of Capstone Copper, which operates mines in Chile’s northern Atacama region, is just one of many copper producers using the high copper prices to their advantage. "We’re working towards … creating a number of world-class copper districts in Chile [and] we see the same potential for our U.S. mine as well."

Russian sanctions creating two-tiered global market

There’s at least one other thing moving the price of copper this week and other base metals even more so: in a significant escalation of economic pressures, the U.S. and UK implemented new trading restrictions on Russian aluminum, copper and nickel, aiming to diminish President Vladimir Putin's war funding capabilities.

Aluminum and nickel prices leaped by as much as 8.1 and 8.9 per cent, respectively, after the sanctions were announced, but have since pared their gains a little.

These sanctions, which specifically prohibit the delivery of newly produced Russian metals to the LME and the Chicago Mercantile Exchange, do not extend to barring non-U.S. entities from purchasing these metals, ensuring Russia can still engage in direct sales, particularly with markets like China.

This is likely to reinforce China's position as the primary buyer of crucial commodities from Moscow, and augment Shanghai's significance as a pricing hub as the Shanghai Futures Exchange becomes the only major global commodities market open to new Russian shipments of these metals.

"We’re going to see the market … bifurcate some more,” said Lisa Reisman, CEO and co-founder of MetalMiner, a commodities analytics firm. "The LME is essentially Russian-sourced aluminum [while] in the U.S., American buyers are using the COMEX contract, which … is mostly non-Russian material. Both exchanges are affected by the same set of sanctions; it’s just going to play out a little differently."

On Friday afternoon, copper was trading at more than $449 per lb., up more than $6 on the day. Aluminum, meanwhile, is trading at $2,599 per metric ton, up about 1 per cent while nickel was at US$18,438 per tonne, up almost two per cent on the day.