Copper markets are facing a growing divide between Western financial investors and Chinese industrial buyers, as a retreat from artificial intelligence-related investments coincides with tightening physical supplies in Asia. The shift is putting pressure on a lucrative US copper trade that has redirected large volumes of metal towards American warehouses in anticipation of import tariffs.
The recent selloff in technology stocks has weakened investor enthusiasm for copper, which had benefited from expectations that the expansion of AI data centres would generate substantial demand for industrial metals. At the same time, Chinese buyers are facing depleted inventories and record premiums for imported copper.
This divergence could reshape global metal flows. While investment funds are reducing their exposure to copper in the United States, Chinese manufacturers are increasingly willing to pay higher prices to secure physical supplies.
AI Stock Selloff Weighs on Copper Investment Demand
Copper has become an important investment proxy for the global AI infrastructure boom, as data centres require substantial quantities of the metal for electrical wiring, power distribution, cooling systems and related equipment.
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However, the recent decline in technology stocks has challenged expectations of sustained AI-related demand. A selloff that erased $2.5 trillion in market value from the Nasdaq 100 on Thursday also affected copper and tin, both of which are used extensively in physical AI infrastructure.
Investment funds have been cutting their bullish positions in copper futures traded on the Chicago Mercantile Exchange (CME).
By mid-September, investors held a net long position of 82,649 contracts, representing their largest collective bet on rising copper prices since 2021. That position subsequently fell to 34,444 contracts, according to the latest Commitments of Traders data.
Outright long positions also declined sharply, dropping from 96,824 contracts in mid-September to 58,475.
The figures do not yet capture the full extent of selling towards the end of last week, suggesting that investor exposure could have fallen further.
The retreat reflects a reassessment of the relationship between AI investment and industrial metal demand. Although data centre construction remains an important source of potential copper consumption, financial investors are becoming less willing to maintain large positions based on expectations of continued growth in technology stocks.
Chinese Copper Inventories Fall to Three-Year Low
While Western investment funds are reducing their exposure, China’s physical copper market is showing signs of tightening supply.
Inventories registered with the Shanghai Futures Exchange have fallen to just 33,848 metric tons, their lowest level in three years. The decline highlights the difficulty Chinese industrial users face in securing sufficient supplies.
Another important indicator is the Yangshan copper premium, which measures the additional amount Chinese buyers are willing to pay for imported copper. According to Shanghai Metals Market, the premium reached a record $230 per metric ton on Monday.
The increase suggests that demand for imported copper remains strong despite wider uncertainty in global financial markets.
However, Chinese buyers are competing for metal in an international market where supplies have increasingly been drawn towards the United States. The US tariff trade has encouraged traders to send copper across the Atlantic to take advantage of higher American prices, leaving fewer readily available supplies for other markets.
The tightening is not limited to Shanghai. London’s copper market is also experiencing supply pressure, with cash copper trading at a $195-per-ton premium over three-month contracts.
These developments indicate that the global copper market is facing shortages in both financial and physical trading centres, although the underlying pressures differ.
How US Tariff Expectations Reshaped Global Copper Flows
The US copper tariff trade has been driven by expectations that Washington could impose import duties, making domestic supplies more valuable than metal available elsewhere.
The price difference between CME and London Metal Exchange (LME) copper contracts created an arbitrage opportunity for traders. By purchasing copper internationally and shipping it to the United States, market participants could potentially benefit from the premium available in the American market.
The result has been a substantial movement of global copper inventories towards US warehouses.
CME warehouses now account for more than 60% of global exchange stocks. Including LME warehouses located in the United States, the country’s share rises to approximately 85%.
This concentration has contributed to a tightening of supplies elsewhere. London faces pressure in its financial market, while Chinese manufacturers are confronting a shortage of physical metal.
The White House’s uncertainty over its eventual tariff policy has added another layer of complexity. Traders have been positioning themselves around the possibility of import restrictions, even as the likelihood and timing of such measures remain unclear.
Narrowing Price Gap Could Change the Direction of Copper Trade
The financial incentive to ship copper to the United States has weakened considerably.
The CME spot premium over the LME contract briefly turned negative last week, meaning American copper prices fell below their London counterparts. Although the premium has since recovered to around $80 per metric ton, it remains far below the more than $700 recorded in August.
The changing price relationship suggests that traders are becoming less confident that US import tariffs will generate the same level of premium.
Political developments have also influenced expectations. The cost of living was a major issue in the recent US midterm elections, in which Democrats secured a sweeping victory. This has further encouraged market participants to reconsider the likelihood of policies that could raise import costs for American consumers and businesses.
The narrowing price gap is already affecting how imported copper is stored and delivered.
The United States imported another 200,000 metric tons in August, bringing its total imports for the year to 1.3 million tons, according to the World Bureau of Metal Statistics.
However, the distribution of newly arrived metal has changed. CME warehouse stocks have increased by 27,000 tons since the beginning of October, while LME-registered stocks have received 107,000 tons in deliveries over the same period. An additional 62,000 tons are being held in off-warrant storage at LME warehouses in the United States.
This suggests that traders are increasingly keeping copper in bonded warehouses rather than immediately clearing it through US customs. The stronger premium for LME cash copper has reduced the financial incentive to complete that process.
What Happens Next for Global Copper Markets?
The next phase of the copper trade will depend heavily on the strength of Chinese demand and the direction of US tariff policy.
If Chinese industrial buyers continue offering higher premiums for imported supplies, traders may find it more profitable to redirect copper towards Asia rather than move it through US customs. This could gradually ease the concentration of inventories in American warehouses and relieve some pressure on Chinese buyers.
However, the outcome is not guaranteed. Copper continues to arrive in the United States, and the volume of metal already held in American warehouses gives traders significant flexibility over where supplies eventually go.
The broader outlook also depends on the sustainability of global AI investment. A prolonged slowdown in technology stocks could weaken financial demand for copper, even if industrial consumption remains supported by data centre construction and other infrastructure projects.
For now, the market is being shaped by two competing forces: Western funds withdrawing from copper futures and Chinese manufacturers seeking additional physical supplies. The narrowing US price premium is bringing these pressures into closer competition.
Ultimately, the direction of global copper flows may depend less on expectations of American tariffs and more on how much Chinese buyers are prepared to pay to secure the metal they need.
With information from Reuters.
