CME copper premium to LME attracting metal shipments to US

Reuters | May 14, 2024 | 

Image: CME Group.

Copper producers and traders are shipping more metal to the United States to profit from higher prices for CME futures compared with London Metal Exchange (LME), according to four sources involved in such trades.


This so-called arbitrage, when traders sell commodities to different locations to take advantage of higher price differences, is the result of surging US copper prices as hedge funds have increased their positions in the futures market amid relatively strong demand there.

Globally prices have risen on increased expectations for demand growth for copper from electric vehicles and other applications, such as electricity demand for artificial intelligence and automation, and concerns about future shortages.

CME copper futures for July rose above $10,800 a metric ton on Tuesday, more than $600 a metric ton above the LME price, compared with only about $50 at the end of February.

The price gap between the CME and LME has been at a “big time positive” for the past two weeks, said one of the sources, who works with a South American producer.

Bids for copper to the US for June have risen to a premium of $300 a ton to the LME price, almost double what shipments were selling at a week ago, the source said.

The shorter transit time from South America to the US has also halved financing costs relative to shipping to China, the source said.

“You can see the (copper) demand in the draw on CME stocks,” said another of the sources, a copper trader based in London.

Copper stocks in CME warehouses in the United States have dropped 30% to 21,310 tons in the past one month, suggesting end-user need for the industrial metal.

Stocks of copper at 103,100 tons in LME approved warehouses are down more than 15% since early April.

Traders mentioned low water levels in the Panama Canal as one reason for tight supplies and disruptions at First Quantum’s Cobre operation in Panama.

(By Pratima Desai, Julian Luk and Siyi Liu; Editing by Christian Schmollinger and Alexandra Hudson)