Copper Morphs From Breakout Mode to Mania

• Copper trades at record highs after explosive breakout run
• AI demand optimism collides with tightening supply conditions
• Gulf disruption fears amplify bottleneck concerns
• Vertical price action raises risk of violent mean reversion

Demand Boom Meets Supply Stress

Copper’s rally is starting to look increasingly speculative, with the move to fresh record highs since the start of May increasingly resembling the explosive price action seen elsewhere across the AI supply chain, including semiconductors and memory chips, as investors aggressively chase exposure to the infrastructure buildout theme.

The explosive rally reflects a combination of both fundamental and technical drivers, resembling the price action seen elsewhere across the AI supply chain where rampant demand expectations have collided with supply disruptions.

At the fundamental level, traders have embraced the AI infrastructure and broader electrification story, with copper increasingly viewed as a key beneficiary from hyperscale data centres, power grid expansion, EVs and renewable energy infrastructure. Signs of resilient Chinese demand and optimism surrounding infrastructure investment and industrial activity have only reinforced that narrative lately.

At the same time, mounting supply concerns have added fuel to the fire, with traders increasingly focused on tight mine supply, refining bottlenecks and collapsing treatment charges, the fee miners pay smelters to process copper concentrate into refined metal. The sharp decline in those charges suggests smelters are competing aggressively for limited concentrate supply, reinforcing fears the physical market may be tightening further.

Why Hormuz Matters for Copper

Escalating tensions in the Gulf have only amplified concerns given a large portion of global sulphur production originates from the Middle East, with much of the seaborne trade flowing through the Strait of Hormuz. That matters because sulphur and sulphuric acid are critical inputs in copper refining process, raising fears shipping disruptions could create bottlenecks further down the supply chain.

Given perceived tightness in the copper market, tomorrow’s meeting between Donald Trump and Xi Jinping in Beijing may prove important for several of the catalysts driving the price higher. Trade, supply chains and geopolitics are likely to be discussed, including potential efforts to ease tensions surrounding Iran. After such a mammoth move higher, the risk is that much of the good news may already baked in the cake.

Breakout Turns Parabolic

Source: TradingView

It’s indisputable that copper has, like many other metals recently, benefited from a softer US dollar and inflationary enviroment, helping fuel the explosive rally to fresh record highs. Technicals have also played an important role.

The retest and failure to break beneath a zone comprising the 50 and 100-day moving averages alongside minor support at $5.83/lb helped springboard the red metal higher, with the price subsequently breaking through resistance at $6.044/lb before staging another bullish breakout above $6.20/lb. That in turn saw copper surge through the former record high at $6.64/lb, with the move resembling a rocket ship.

But the explosiveness of the rally has left the price looking very, very stretched.

RSI (14) has pushed into overbought territory while the price closed Tuesday above the upper Bollinger Band, underlining just how rare such a move is and how vulnerable copper may be to an abrupt snapback.

The insert in the top left of the main chart shows the copper price now sits more than four ATRs (14) above the 50-day moving average. Similar extreme deviations in recent years, highlighted by the red dotted vertical lines, have coincided with swing highs of varying significance, some modest, others extremely large.

This time may be different, but copper, like so many AI-related plays right now, increasingly looks priced for perfection.

If the price were to slip back beneath the former record high and hold there, it could present an interesting short setup targeting a retracement towards the initial breakout zone around $6.20/lb. A tight stop above the former record high would offer protection against a resumption of the bullish move, while a retest and rejection of the prior highs would strengthen confidence in the setup.

Should the copper price continue to hold above the former highs, longs could be set with a stop placed beneath for protection, seeking further upside extension. In that scenario, the preference would be to wait for a notable topping pattern to emerge rather than nominating a specific upside target.

For now, the momentum picture remains entirely bullish with RSI (14) continuing to trend higher despite overbought conditions while MACD has staged a bullish crossover, reinforcing the message.

But as outlined earlier, things are looking stretched and then some.