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(Kitco News) – The U.S. consumes only 6% to 7% of the world’s copper but now holds close to 70% of visible exchange inventory. Saxo Bank’s head of commodity strategy says some of it could stay put.
The United States accounts for something like 6% or 7% of global copper consumption, by Ole Hansen’s reckoning.
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It now holds close to 70% of the copper reported across the world’s three major futures exchanges.
“If you look at the three major futures exchanges, New York, COMEX, in London, LME, and Shanghai Futures Exchange, the combined copper that is now held in COMEX out of the total is approaching 70%,” Hansen, head of commodity strategy at Saxo Bank, told Kitco News. “We’ve never seen that before.”
The immediate pull is tariff risk, reinforced by demand out of China. Hansen described the London market as caught between the two.
The Commerce Department has recommended a phased duty on imported refined copper, 15% in 2027 rising to 30% in 2028. Seven weeks past its own deadline, the administration hasn’t decided. Traders stopped waiting, because the arithmetic is simple: get the metal inside the border before a duty lands and it’s worth more the moment it does.
“If you can get hold of copper, you want to ship it onshore into the U.S. just in case there is a tariff applied,” Hansen said, “because that would mean the value of your copper would go up.”
Pulling from the other direction is Asia.
“We’re seeing demand having picked up in China,” he said. “They are at the forefront of the energy transition, so the demand for copper there remains very strong, even though the housing market, which used to be the main source of demand for copper, is in a downturn.”
He allows that the American pile could eventually reverse. If prices outside the U.S. rise far enough, the arbitrage flips and the metal sails back out. Hansen has watched that fail once already.
“We would have thought that would have happened last year, when we had the big pileup of copper coming into the U.S. ahead of the announcement, which was then postponed,” he said. “In the months that followed, practically none of the copper that had come into the U.S. left the U.S.”
“So there is a risk that all this copper that has moved stateside is becoming almost a stranded metal, and that will continue to keep the rest of the world tight.”
The London Metal Exchange, where industrial metals are priced and physically delivered, publishes its warehouse holdings every morning. As of Monday’s close, the total stood at 207,825 metric tons.
Just over half of that, 104,750 tons, has been cancelled, meaning its owners have earmarked it for withdrawal. About 63% of the cancelled tonnage sits in American warehouses, with New Orleans alone holding 45,625 tons.
Copper for immediate delivery closed $535 per metric ton above the three-month contract on Monday, the widest gap since 2021. Traders call that backwardation, and it usually means buyers can’t wait.
Smaller than it looks
That $535 sits almost entirely on a single date.
Move along the curve and the tension nearly evaporates. September against three-month runs about $57. September to October, about $30. Monday’s contract settled into Wednesday, the exchange’s main monthly delivery date, when anyone still short has to produce metal or pay to get out.
Asked whether that reflects genuine shortage or a scramble to cover, Hansen said it was both, with the weight on the second.
“It’s a lot of people covering,” he said. “Once we get into the approach to the delivery period, all the big boys, they have long gone. They’ve rolled on to the next month.”
He allowed that real tightness is part of it. What he doubts is the scale.
“It could indicate that there are some squeezes, some shortages that have ended up causing this,” Hansen said. “So I would probably question the amount of tonnage that is behind this backwardation. It’s probably not in the many millions of tons. It could potentially just be a relatively small amount driving it.”
In 2021, with spreads this wide, the LME imposed emergency measures to stop the price running away. Hansen doesn’t expect that again.
“It’s way too early,” he said. “Nickel is a very small market. We’ve seen that getting squeezed into the hills and they had to intervene. Copper is the global benchmark.”
Supply is not the answer
BHP reported Monday that copper made up more than half its revenue for the first time in the company’s history, helped by a 35% jump in the prices it realized. In the same set of results, output from its Chilean operations slipped as ore grades declined. Cochilco, Chile’s state copper commission, expects the country’s production to fall 2.6% this year.
Hansen’s explanation isn’t complicated: It’s just slow.
“It is the execution,” he said. “It takes years to get from the discovery to the first metal. The mining companies have been focusing on consolidating in the last few years instead of actually going for expansion.”
“It is the ore grade, the quality’s coming down. It is the cost going up, energy costs, the steel cost. A lot of things conspiring at a time in history where the need for this metal has probably never been stronger.”
BHP’s chief executive put a price on the alternative this week. Building new copper costs $16,000 to $30,000 a metric ton. Buying a company that already has it runs well over $100,000 once the takeover premium is paid.
That gap has sat in front of the industry for years. Hansen’s read on why it hasn’t produced a building boom is partly focus, and partly geology.
“I think they probably have had their focus somewhere else, and perhaps simply also because the low-hanging fruits have long been picked,” he said. “It is a very intensive and very costly operation to get these new operations going.”
The debt that ties copper to gold
Federal Reserve figures released Tuesday showed industrial production rising for a second straight month, with manufacturing growing in the second quarter at its fastest annual pace since 2021. Computers and electronics were up 1.9% on the month, business equipment 0.8%.
Housing went the other way. Single-family starts came in at their weakest since 2022, which matters because construction has long been one of copper’s biggest customers.
American factories are still running at only about 76% of capacity.
“It’s fairly safe to say that it is a narrow expansion,” Hansen said. “The U.S. has become increasingly dependent, from an economic growth perspective, on the successful rollout of these massive investments.”
Then he made the connection himself, unprompted.
“It’s a very debt-financed, increasingly debt-financed area of the economy, and that’s what makes you a little bit worried. We have AI hyperscalers competing to borrow money, and they’re now competing with governments, and that’s driving up yields.”
The hyperscalers are the handful of firms building the world’s AI data centers. They used to sit on cash and collect interest on it. Now they borrow, in size, in the same market where treasuries are sold.
The 30-year Treasury yield touched 5.32% this week, the highest since 2007. French 30-year borrowing costs are back at 2008 levels. Germany paid the most in 15 years to sell long-dated paper.
That combination is supposed to be poison for gold, which pays its owner nothing and looks worse the more a bond pays. Gold was under $4,000 a month ago. It touched $4,436 Tuesday morning before selling off.
Hansen has seen this arrangement before.
“Look back at 2022 to ’23,” he said. “Central banks were hiking rates aggressively. Real yields in the U.S. went from negative to positive, and gold didn’t move. At that point it should probably have been 5% to 10% lower than where it traded.”
Real yields are what a bond pays after inflation is stripped out, and when they climb, gold normally suffers. It didn’t then, Hansen said, because the buyers who stepped in weren’t watching yields at all. They were central banks.
He sees a similar split now. Western investors have largely stayed out through exchange-traded funds, at least until recently, still pricing gold off the dollar and the cost of money. Buyers elsewhere, chiefly across Asia, have kept taking metal regardless.
What’s changed, he said, is what everyone else is finally looking at.
“We are now waking up to this debt clock in the U.S., which hit $40 trillion yesterday and is just rising at an alarming rate. We have so much debt that we cannot afford seeing yields move much higher, because the funding burden just gets so much higher. We could afford to pay these high interest rates. We can’t now.”
“That is the main reason investors are starting to ask for a bit of a premium to be involved in the long end.”
His gold target comes with conditions, and he named all of them.
“4,500. We need to get back above the 200-day moving average,” Hansen said. Beyond the chart, he said the market probably needs an end to the Iran conflict and cooler inflation. “Which basically leaves the road open for a revisit of 5,000 before year end. And then a potential new record next year.”
On the downside, he wants $4,200 to hold.
Lukewarm, but not bearish, on silver
Silver fell about 3% Tuesday after climbing nearly 2% the day before. The Silver Institute expects a sixth consecutive annual deficit, 46.3 million ounces this year, and puts the cumulative shortfall since 2021 at roughly 762 million ounces.
Those are the figures silver bulls quote. Hansen doesn’t dismiss them, but he won’t lean on them either.
“We cannot run a deficit indefinitely. At some point there will be a response,” he said. “But we’re still left with the situation that silver is 50% dependent on demand from the industrialist.”
That dependence cuts both ways. Investment buying faded after the winter collapse, he said, and factories changed behavior once the price ran past $100.
“As it moved above 100, we started to hear more and more stories about the industrial side starting to look for alternatives.”
His near-term view isn’t a call for silver to fall. It’s a call for it to run out of road somewhere higher.
“I’m a little bit more lukewarm on silver for the next stage,” Hansen said. “I think it can keep up with gold up towards the $100 level, if we get that momentum going, but then I think there will be another rethink and another pause, where the market will consider whether demand can justify prices at those levels.”
He is watching the gold-silver ratio, the number of ounces of silver it takes to buy an ounce of gold. It sits near 68. Hansen flagged 73 as a significant level above it, and noted that some technicians see a break there opening the door toward 100, which would mean silver falling further behind gold rather than catching up.
For the people who bought January’s peak above $121 and watched it halve, he offered no softening.
“A lot of people got their fingers badly burned. Getting in too late, and then seeing the price almost half in a couple of weeks. That was just brutal.”
Two kinds of scarce
The split was visible on Tuesday’s screens. Gold fell 1.4%, silver about 3%, platinum nearly the same. By Tuesday afternoon, copper had reversed an earlier decline and was trading near its session high.
Investors have long treated the copper-gold ratio as shorthand for growth against fear. Hansen argues that reading is breaking down, because the two metals are now short of different things.
“There is the physical scarcity that we’re seeing in copper, which is underpinning the price,” he said. “And then in the investment metals, where I call it the monetary scarcity, there is a strong demand for alternative assets. Central banks have been at the forefront of this, but I think we are seeing that investor base widening out once again.”
Only one of those shortages has a ceiling. Copper gets consumed, and if it gets expensive enough, engineers design around it. Gold gets put in a vault, and the people buying it aren’t using it up.
To illustrate the difference, Hansen reached for an extreme rather than a forecast.
“Gold could in theory go to 10,000,” he said. “Whereas there is a limit to how high some of these industrial metals can go before it starts to have an impact on demand.”
Asked to hold a single metal for five years, he took gold. Given three, he took gold, platinum and copper.
On position size he declined to give his own, saying it would be “too overweight” to be useful, and suggested 5% to 10% of a portfolio in hard assets. He pointed to the Bloomberg Commodity Index, which he put up about 28% this year against roughly 20% for the S&P 500, and more than 40% over 12 months.
“The good old-fashioned commodities are actually doing better,” Hansen said, “even better than the Nasdaq, with all the hype.”
Two things would change his mind on copper. A clear end to tariff risk that sends American metal back out into the world, or something considerably larger.
“If we wake up tomorrow and this whole AI craze is being reversed, realizing that the money’s never going to create the revenue, that probably could be the biggest shock to the system.”
Watch the video above for the full conversation with Ole Hansen, including the mine restart he’s watching in Panama, why disrupted Gulf supply is tightening the aluminum market, and the one development he says could deliver the biggest shock to copper.
See live precious metals prices for gold, silver, platinum and palladium — in USD, CAD and 12 more currencies.
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