Copper futures in New York rallied to a record high after a short squeeze that’s prompted a scramble to divert metal in other regions to U.S. shores.

The sudden surge — which has seen Comex futures jump by more than seven per cent this week — has left metal for July delivery to the New York exchange trading at a record premium over later months, and at unprecedentedly high levels compared with copper on other global commodities exchanges.

“Short spread and futures holders are being squeezed,” said Michael Cuoco, head of hedge fund sales for metals and bulk materials at StoneX Group.

Embedded Image

The sharp price move has been tightly focused on the most-active July contract on Comex. The expanded premium of that price over copper on other global exchanges — and the need for shorts to deliver metal against their positions — is already prompting a rush by traders in China to arrange shipments to Comex warehouses in the U.S.

“The short squeeze is set to continue as traders might not be able to ship enough metal from either Chinese bonded warehouses or from Europe ahead of the delivery date,” Jia Zheng, head of trading at Shanghai Dongwu Jiuying Investment Management Co., said by phone. Metal could also be sourced in the Americas.

Comex futures for July delivery rose as much as 4.2 per cent to US$5.0855 a pound on Wednesday, passing an earlier record for the most active contract set in March 2022. That high on Comex is equivalent to $11,212 a ton — about $1,000 above the latest benchmark price on the London Metal Exchange, which just notched a fresh two-year high.

The spike also pushed the Comex market into its biggest-ever backwardation — indicating tight nearby supply — with July trading nearly 30 cents a pound above the September contract on Wednesday.

Short-squeeze rallies typically occur in commodities markets as lossmaking traders are forced to exit positions under pressure from ballooning margin calls or the threat of having to deliver physical material — or pay a big rollover fee — when the contract reaches expiry.

Jia from Dongwu Jiuying said the surge on the July contract was partly due to a squeeze on traders who were engaged in a so-called reverse arbitrage trade, where they go short Comex and long on Shanghai copper.

Futures traders with long positions are likely to roll them forward to benefit from the huge backwardation, said Cuoco from StoneX. “These are rich values. We expect participants to take profits off the table or to roll positions forward.”