Copper squeeze deepens as LME stockpiles plunge

[Ben Graham]

Copper is experiencing an historic backwardation as traders react to rapidly falling inventories, potential US tariffs, and a pricing crisis at smelters.

Spot copper traded at a $345-per-ton premium to three-month futures on Monday, the highest level since a record surge in 2021. The sharp backwardation points to a tightening supply.

Backwardation occurs when the price of a near-month contract is higher than that of a longer-term contract, indicating concerns about current supply.

Readily available inventories on the LME have declined about 80% this year, and now equate to less than a day of global usage. The depletion has been fueled by a global race to move copper to the US ahead of potential import levies.

Tariff speculation

In February, President Donald Trump directed the US Commerce Department to investigate the need for copper tariffs, with a report due within 270 days.

The announcement triggered a surge in US-bound shipments as traders rushed to preempt any trade barriers. Refined copper imports to the US topped 200,000 tonnes in April, the highest monthly level in over a decade.

At the same time, copper smelters in China are now so desperate to find raw material they are paying miners for converting their concentrates into refined metal.

Spot treatment charges have fallen to $-45 per ton (TC) and -4.5 cents per lb (RC) level, according to Benchmark Mineral Intelligence, amid excess smelting capacity and insufficient raw material supply.

The LME last week implemented measures to curb backwardation driven by individual traders holding large front-month positions. Similar steps were recently used in the aluminum market, where Mercuria Energy Group was required to lend back a major position at a capped rate to prevent sharp near-term price spikes.

However, trading data suggests the copper squeeze is more systemic. Key short-term spreads on Monday moved independently of any single large trader, indicating broader market pressure.

LME rules require traders holding more than 50% of available inventories and spot contracts to lend their positions back at a capped rate via the Tom/next spread—starting at 0.5% above the spot price. On Monday, that cap would have been $49.73 per tonne. But the spread briefly surged to $69, suggesting those rules weren’t triggered and the squeeze was driven by widespread buying.

The pressure extends beyond near-dated contracts, with backwardations now evident through June 2026—a sharp shift from six months ago, when short-term contracts traded at a discount, signaling comfortable supply.

On the COMEX, copper for July delivery slipped 0.2% on Monday, to $4.83 per pound ($10,626 per tonne).

(With files from Reuters and Bloomberg)