Options bets up to $12,000 are fueling copper’s red-hot rise

Copper traders are starting to place bets that the metal will hit $12,000 per tonne by December but market makers say bullishly positioned options are dragging the metal’s price higher sooner than that.

Targeting March expiry, traders have placed 1,970 lots of call options at $9,000 per tonne on the London Metal Exchange, giving the holder the right to buy the metal if that level is hit; a further 700 lots are placed at $9,500 per tonne on the LME’s Select system.

“The market is just being pulled to the strike price, the option sellers will have to buy and borrow the spread and the position is bigger than the entire LME stocks,” Malcolm Freeman, chief executive officer of options broking specialists Kingdom Futures, told Fastmarkets referring to a scenario known as a “gamma squeeze.”

Each lot represents 25 tonnes of copper metal, while positioning on the March $9,000 calls has been over 2,000 lots since the start of the year.

The LME three-month copper contract is heading for its biggest weekly gain since 2016, up 7.1% this week at $8,950 per tonne on Friday February 19.

Copper prices have risen sharply today, up 4% with 32,500 lots traded on the exchange.

Recently, options bets have been placed that the metal will hit $12,000 per tonne in July and December.

“We have been pricing up $9,000+ call strikes since the summer, more recently seeing interest out to $15,000. There is a good mix of conviction in the market whilst others are looking at lottery tickets,” StoneX head of hedge-fund sales for metals and bulks Michael Cuoco said.

Rising copper prices come as visible stocks of the metal have dwindled due to growing electronics and housing demand. Available copper in LME warehouses amounts to 46,450 tonnes, the lowest in six months.

Meanwhile China Copper, the largest smelting group in China, plans to cut refined production faced with declining treatment and refining charges for concentrate, which have sunk over the past year as smelters expanded production faster than pandemic-hit mines could supply.

What to read next
UG2/MG chrome ore prices experienced major declines in the week to Tuesday July 12, dropping by $15 per tonne week on week, as the market saw the beginnings of a break in the continuing stalemate of recent weeks
Fastmarkets has corrected the first line in its pricing rationale for MB-CU-0403 copper grade A cathode premium, cif Shanghai, which was published incorrectly on Tuesday August 2 due to a reporter error.
Electric-arc furnace (EAF) steel production is on the rise as China strives to meet decarbonization targets
There is a feeling of déjà-vu in the copper market as the potential for production curtailments and closures rears its head once again
The publication of Fastmarkets’ Shanghai bonded copper stocks for Monday July 25 was delayed by one day due to a reporter error.
Seaborne iron ore concentrate and pellet prices fell during the week to Friday July 15 amid limited demand from steelmakers, market sources said
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
Proceed