Editor OilPrice.com
6 min read
Via Metal Miner
There are many hedge fund strategies organizations can employ to generate returns and manage risk. Now, metal buyers are looking to apply these same concepts to certain metals. Base metals like copper have seen notable swings so far in 2025. According to the CME group, copper oscillated in a roughly $4.55–$4.80 per pound range throughout May as Chinese demand steadied and trade tensions eased. In contrast, aluminum has been much stronger. Analysts now predict that LME aluminum will average about $2,574/tonne in 2025 (up ~6% from 2024) on expected supply deficits.
Figure: A January 2025 Reuters poll shows analysts’ median 2025 forecasts for base metals. Aluminum is expected to outperform (≈+6% vs 2024), whereas copper (CU), lead (PB), nickel (NI) and tin (SN) forecasts were trimmed. Sources: reuters.com VIA mining.commining.com
In short, base-metal prices remain volatile entering the second half of 2025. Emerging supply constraints (Chinese smelters pledging capacity cuts) and strong “energy transition” demand globally remain counterbalanced by weaker growth and trade skirmishes. Amid this uncertainty, metal buyers cannot rely on “benign” markets.
Effective hedging, which involves using a mix of financial and operational tools, is essential to stabilize costs. As one risk manager put it, commodity hedging “provides a level of price predictability” to aid in both budgeting and planning.
Practical hedging involves locking in prices or managing exposure. One common strategy is buying metal futures on exchanges like the CME or LME. Forward contracts can also fix purchase costs. For example, a cable manufacturer might buy COMEX copper futures equal to its planned purchase, so any spot price rise is offset by gains on futures. In other words, if the physical price jumps later on, the hedged futures position gains an equivalent amount. According to the CME group, this “back-to-back” hedging lets a producer or consumer offset price risk.
Options give the right, but not the obligation, to transact at a set price. For instance, buying a call option lets you lock in a maximum purchase price (for a premium) while retaining upside if prices fall. Conversely, a put option can guarantee a minimum sale price for stored metal. See the details about the pros and cons of call and put options in MetalMiner’s free guide 5 Best Practices of Metal Based Sourcing.
The LME notes that a buyer pays a known premium for “unlimited potential upside,” effectively capping the cost at the strike price. For example, a copper buyer might buy calls struck near current levels. If market prices spike, the call payoff compensates for the higher cost. To reduce premiums, companies can use collars (buying a put and selling a call) to set both floor and ceiling prices. In practice, options are best for insuring against rare extreme moves, whereas futures lock in cheaper prices when a move is expected.
