Copper squeeze builds with spreads surging and price near record

LME warehouses are a crucial last-resort source of supply to the physical copper industry, and metal in its depots can also be used to close out expiring futures contracts. Photo by Bartek Sadowski/Bloomberg

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The metal’s spot price traded as much as US$545 a metric ton above the three-month futures contract, the widest backwardation since a historic squeeze in 2021 prompted the adoption of emergency measures to contain a runaway rally. Other spreads also surged, and futures closed in on a US$14,500-plus peak reached during a spike in January.

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The current supply crunch is being fuelled by a surge in shipments to the United States in anticipation of a potential decision on import tariffs, while recent tightness in China has also drawn cargoes there. That has led stockpiles across the LME’s global warehousing network to shrink by almost half since mid-May.

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Investors were already warming to the metal, whose biggest application is in electrical wiring. They cite longer-term themes of robust demand powered by the energy transition toward electrification, the need to build data centres and infrastructure for artificial intelligence, as well as the mounting industry challenge of finding and funding new mining pits.

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The elevated premium for the near-term delivery of copper “points to continued scarcity of available metal,” said Ewa Manthey, a commodities strategist at ING Groep NV. “We expect these supply constraints to keep the market well supported in the near term, particularly if demand remains resilient.”

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Monday’s fireworks came at a key moment in the LME’s calendar, just ahead of the third Wednesday of the month, which is the main focus of liquidity in the exchange’s contracts.

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Traders and brokers with short positions on that date were trying to cover their positions by buying cash contracts and selling later-dated ones, driving spreads higher, according to market participants. On the other side, owners of metal have been reluctant to relinquish it given the lucrative arbitrage opportunities presented by a surge in U.S. prices on speculation of tariffs.

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LME warehouses are a crucial last-resort source of supply to the physical copper industry, and metal in its depots can also be used to close out expiring futures contracts.

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Global benchmark three-month futures settled little changed at US$14,157.50 a metric ton, after earlier advancing as much as 1.7 per cent on the LME.

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Stockpiles tracked by the LME rose above 207,800 tons, after ending last week at its lowest volume since February. Monday’s 1.4 per cent increase ended a 42-day streak of declines, the longest since 2014.

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Unbalanced Inventories

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A quirk of the current situation is that total global inventories are not particularly low, but are concentrated in the U.S. as traders bet on President Donald Trump slapping tariffs on the refined metal. In addition, demand in China is not seen as particularly strong, but smelters there have struggled with feedstock supplies, increasing the need for imports.