The Reserve Bank of Australia (RBA) recently announced a cut in interest rates, a move that was anticipated by market analysts. RBA Governor Michele Bullock commented that the higher interest rates had effectively slowed economic activity and curbed inflation. Meanwhile, in the commodities sector, the premium for US Comex copper futures over the London Metal Exchange (LME) contract hit a record high last week, reaching $1,200 per ton. Although this spread has decreased to over $900, market dynamics remain in flux due to geopolitical and economic factors.
The United States relies significantly on copper imports, accounting for approximately 45% of its domestic consumption. Chile and Canada are its primary suppliers, contributing 35% and 26% of the imports, respectively. However, market stability faces potential disruption as President Donald Trump has threatened to impose tariffs on copper imports. These tariffs, though delayed compared to those on aluminium and steel announced last week, could lead to temporary shortages in the US copper market.
Traders have responded to these market conditions by reallocating metal from global LME warehouses to the United States, aiming to capitalize on the arbitrage opportunity presented by the price disparities. This strategic shift comes as LME copper prices retreated from over three-month highs on Monday. Additionally, the benchmark cash-to-three-month spread entered backwardation on Friday for the first time since June 2023 but has since eased back into contango.
The proposed tariffs have created uncertainty and prompted expectations of tightened copper supply in the US market. The shifting dynamics have led traders to explore opportunities and adapt strategies to navigate the potential impacts on supply chains and pricing structures. As the market responds to these changes, the premium fluctuations between US Comex copper futures and LME contracts are closely monitored by stakeholders.
In the broader economic landscape, the GBP/USD remains under modest bearish pressure, trading below 1.2600 on Tuesday. This reflects ongoing market volatility influenced by global economic indicators and geopolitical developments. Early forecasts suggest that headline inflation remained steady at 1.8% compared with January of the previous year, adding another layer of complexity to the economic outlook.