Supply tightening combined with rising expectations of a Fed rate cut push London copper spot premium to a five-week high.

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Supported by tighter spot supply and strengthened market expectations of a Fed rate cut next month, copper prices rose, highlighting the combined influence of macroeconomic outlook and real supply-demand fundamentals.

The main catalyst for market optimism was the latest remarks from Federal Reserve officials. Fed Governor Christopher Waller advocated for lowering interest rates due to the weakening U.S. labor market, which reinforced market confidence in further monetary easing. Generally, lower borrowing costs are positive for industrial metals.

Meanwhile, supply tightness signals in the physical market have become increasingly evident. The spot copper premium over the three-month futures contract on the London Metal Exchange (LME) surged to over $20/ton, hitting a five-week high, suggesting that traders are willing to pay higher prices for immediate delivery of copper.

As a result, on Tuesday, LME copper futures rose 0.98% to $10,878/ton, and copper prices on the New York Commodity Exchange (Comex) also moved higher. Among other base metals, aluminum prices rose 0.4% and zinc prices rose 0.5%.

Supply shortage intensifies, smelter processing fees hit new lows

Behind the surge in copper prices is the increasingly strained global copper supply chain. A series of mine production disruptions, coupled with ongoing expansion of smelting capacity in China, are posing severe challenges to global copper smelters.

The direct consequence of the supply-demand imbalance is that refining charges (TC/RCs), a key profitability metric for smelters, have fallen to historical lows for the year. These are fees miners pay to smelters to process copper concentrate into refined copper; their decline signals a shortage of concentrate supply and weakened bargaining power for smelters.

The global shortage of copper concentrate also poses an initial challenge to India’s efforts to boost its self-sufficiency in metals.

A notable example is Gautam Adani’s copper smelter in Gujarat, India, which has received only a small fraction of the ore required for full-capacity operation. This situation highlights that in the context of global ore supply shortages, even new and advanced smelting capacity cannot escape the constraints of upstream material shortages.

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