Copper prices slipped on Friday and were heading for their first monthly decline since June, as a wave of caution over artificial intelligence spending rippled through financial markets. The pullback comes even as the physical market for the metal shows signs of tightness, with buyers still willing to pay a premium for immediate delivery.
Three-month copper on the London Metal Exchange (LME) fell 0.8% to $14,245 a metric ton, after touching a low of $14,166. That left the metal on track for a 1.3% drop in October, snapping a three-month winning streak, according to Reuters.
The move wasn't really about copper's fundamentals. Instead, it was part of a broader "risk-off" mood that swept through markets, triggered by higher oil prices and a slide in technology shares. Investors are increasingly questioning whether the massive sums being poured into artificial intelligence will generate the returns that justify the spending. That uncertainty has pushed some money toward bonds and other safer assets, dragging down commodities like copper that tend to thrive when investors are feeling optimistic about growth.
The AI-related jitters have been a recurring theme in recent sessions. As worries about AI spending have weighed on tech shares, they've also spilled into other markets, including emerging markets and even Treasury yields, which have seen their biggest monthly drop since 2023.
Physical market still tight
While the headline three-month price has been falling, the physical market for copper tells a different story. The LME cash contract has been trading above the three-month price, a structure known as "backwardation." That's the opposite of the more common "contango," where future prices are higher than spot prices.
Backwardation is a signal that buyers want metal now, not later. It reflects tight near-term supply and can encourage holders of inventory to sell, but it also raises costs for manufacturers and traders who are short nearby copper and need to roll their hedges forward. Each time they roll, they may have to pay the premium, which can add up.
Britannia Global Markets, a brokerage, said the backwardation "remains elevated," indicating that the squeeze on near-term supply is still in place. That means even if risk-off trading drags the three-month benchmark lower, near-dated prices and time spreads could stay supported and volatile.
In China, the world's biggest copper consumer, the Yangshan copper premium—an extra fee paid for imported copper—was near a 13-year high of $205 a ton. That's a sign that Chinese buyers are willing to pay up for metal, partly because scrap supplies have tightened.
Supply headlines mixed
On the supply side, the news was mixed. Rio Tinto restarted underground work at its Oyu Tolgoi mine in Mongolia after a seismic event, which had briefly raised concerns about disruptions. Meanwhile, Chile's copper output fell 15% year-on-year in September, according to Reuters, adding to worries about global supply constraints.
These factors underscore a market that is finely balanced, with demand holding up in some regions while supply faces occasional hiccups.
What it means for investors
For everyday investors, the copper market can be a useful gauge of global economic health. Copper is used in everything from construction to electronics, so its price often reflects expectations for industrial activity. The recent slide, driven by AI spending doubts, suggests that investors are becoming more cautious about the growth outlook.
But the tightness in the physical market is a reminder that the headline price doesn't tell the whole story. For companies that buy copper, the elevated backwardation and high Yangshan premium mean higher short-term procurement and hedging costs, even if the three-month price is falling. That could squeeze margins for manufacturers and traders who rely on copper as an input.
For investors in copper-related stocks or funds, the key takeaway is that the metal's price is being pulled in two directions: a macro-driven selloff on one hand, and a physically tight market on the other. That can lead to volatility, and it's worth watching whether the AI-driven risk-off mood persists or fades.
As always, it's important to remember that commodity prices can be unpredictable, and past performance is no guarantee of future results. Investors should consider their own risk tolerance and time horizon before making any decisions.
