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The US and the UK have unveiled fresh limitations on trading Russian metals, aimed at weakening President Vladimir Putin’s financial support for his military operations. Specifically, the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME) are excluded from accepting new supplies produced by Russia. This action poses a potential threat to global metals markets, signaling a concerted effort to disrupt Putin’s funding mechanisms. Copper surged to a 22-month peak, and is susceptible to sudden fluctuations due to a significant accumulation of positions (Figure 1) by market players such as hedge funds, who may swiftly liquidate their holdings. The surge in the metal’s value has puzzled certain observers, as numerous indicators suggest that the physical market remains subdued. Spot prices are notably lower than forward prices – a condition referred to as cotango – suggesting abundant supplies. Additionally, inventories are on the rise and premiums in China have hit their lowest point in nearly a year. |
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Figure 1: Front-month COMEX copper contract, speculators’ funds Following a robust beginning to the year, silver is poised to maintain its strength, buoyed by unprecedented industrial usage and a persistent supply shortfall. Industrial demand reached historic heights in 2023 and is projected to increase by another 9% this year, particularly driven by environmentally-friendly applications like solar panels, as outlined in the latest survey report from the Silver Institute. This trend is expected to contribute to the metal’s fourth consecutive ear of supply deficits. Silver, often dubbed the “devil’s metal” due to its volatile nature, is currently trading close to a three-year peak, mirroring the upward momentum in gold prices, which have been partly fueled by safe-haven demand amidst geopolitical tensions. Silver has already surged by 20% this year, trading at approximately $28.5 per ounce on the NYMEX. Speculators’ funds returned to a 2-year high (Figure 2) net long position when the Russian invasion of Ukraine began. |
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Figure 2: Front-month NYMEX silver contract, speculators’ funds With Russia accounting for nearly 40% of the global palladium supply, the West may be hard-pressed to risk a shortage in metal supply due to sanctions, as it would likely strain automotive sector supply chains. Increasing sales of battery-powered vehicles and growing recycled supply present a challenging medium-term outlook for palladium, as the market is expected to shift towards a multiyear surplus beginning next year. However, risks to primary supply could keep the market in a larger deficit in the short term, counteracting a decline in demand and providing downside support to the metal’s price over the next 6-12 months. Having that in mind, money manages are seen as proactive and place their bets toward increased palladium prices, leading speculators’ funds to retrieve in 2-month high (Figure 3). |
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Figure 3: Front-month NYMEX palladium contract, speculators’ funds |