Commodities Surge: BofA Bullish, Copper Squeeze Up

Commodities Surge: BofA Bullish, Copper Squeeze Up

Two clear, actionable stories dominated commodity headlines this week. First, Bank of America’s strategist signaled a broad bullish stance on the commodity complex, linking fiscal stimulus and investor flows to sustained price support. Second, a large physical copper withdrawal from LME warehouses in Asia tightened supplies and pushed cash copper premiums sharply higher. The convergence of macro-driven investor demand and acute physical tightness is creating momentum across energy and metals—and raising near-term price risk for industrial users.

BofA’s Bullish Call: Why It Packs Punch

Policy drivers: the ‘run it hot’ thesis

Bank of America argues that a more expansionary fiscal stance—what it calls a “run it hot” approach—combined with persistent inflation expectations creates a commodity-friendly backdrop. Fiscal expansion typically increases raw-material demand for construction, energy and industrial projects, while inflation expectations erode real returns on bonds and make hard assets relatively more attractive.

Investor flows and asset implications

As institutional managers re-evaluate allocations, commodities are being framed as an alternative to fixed income. BofA highlights a repositioning toward energy and metals equities; energy stocks, despite a notable year-to-date decline, are drawing renewed interest amid expectations for stronger demand from sectors like data-centre buildouts and electrification. If flows continue, physical demand and futures positioning can amplify price moves across the commodity complex.

Copper Squeeze: The Supply Shock That Matters

What happened on the LME?

In a discrete but consequential move, a major trader withdrew roughly 40,000 metric tonnes of copper from LME warehouses in Asia—mainly South Korea and Taiwan—equivalent to about $460 million. Cancelled warrants around that time totaled about 56,875 tonnes, representing some 35% of LME on-warrant stocks. The immediate effect was a jump in cash premiums and a return to strong backwardation (cash trading at a premium to three-month futures), with spreads widening to roughly $88 per tonne and headline copper prices climbing toward $11,500/tonne.

Why this tightness ripples through industry

Copper is central to electrification, construction and manufacturing. When physical availability tightens and cash spreads widen, utilities, builders and EV manufacturers face higher procurement costs and potential delivery delays. Short-dated backwardation also raises the chance of near-term squeezes for short positions and increases the value of holding physical metal versus paper positions.

Practical Signals: What Traders and End-Users Should Watch

• Inventory movements: LME and regional warehouse withdrawals and cancelled warrants are first-order signals of physical tightness.
• Backwardation/contango: Spreads between cash and prompt futures indicate immediate supply stress versus longer-term views.
• Positioning and flows: ETF inflows, fund net longs, and institutional reallocation into commodity-related equities can sustain price momentum.
• China demand trends: Manufacturing, construction starts, and policy stimulus in China remain major demand drivers for base metals and energy.
• Energy inputs: Oil and gas prices affect mining and transport costs, which feed into commodity supply economics.
• Hedging horizon: Short-dated hedges may become expensive in tight physical conditions; consider staggered roll strategies or physical coverage where possible.

Conclusion

The current convergence of broad investor interest—spurred by fiscal and inflation dynamics—and pinpoint supply disruptions, exemplified by the large copper withdrawals in Asia, is supporting elevated price risk across the commodity complex. For investors, this creates opportunities tied to flow dynamics and sector rotation. For industrial users and processors, the environment demands closer inventory oversight, adaptive procurement strategies, and clearer hedging tactics to manage spikes in cash premiums and delivery uncertainty. The week’s developments underscore that both macro positioning and idiosyncratic physical moves can rapidly alter price trajectories for raw materials.

Note: numerical figures referenced are based on recent exchange and trade-reporter data showing the scale of warehouse withdrawals, cancelled warrants and backwardation levels that drove prices higher this week.