Copper inventories underpinning benchmark futures contracts on the London Metal Exchange (LME) are poised for their largest weekly inflow since 2020. This influx is driven by traders seeking to profit from a significant supply squeeze. The high premiums for immediate delivery are incentivizing traders to deliver metal into the market, while also encouraging short sellers to fulfill their positions by supplying copper to the LME system rather than covering at elevated prices. Trafigura Group was noted among the trading houses that made substantial copper deliveries to the exchange earlier this week.
The surge in LME copper inventories, which increased by over 35,000 tons in one day and more than 20,000 tons the previous session, has provided some relief to a historic squeeze on the market. These deliveries follow a period where stockpiles had decreased by approximately 75% from their mid-April peak. This situation has led to LME copper prices staying above $14,000 per ton.
The LME copper market has been characterized by extreme tightness and a sharp backwardation, where immediate delivery metal commands a significant premium over future contracts. This premium, which reached nearly $550 per ton at its widest point on Monday for the cash-to-three-month spread, created a strong financial incentive for holders of physical copper to bring it into LME warehouses. The recent deliveries, including some metal reportedly coming from the United States and China, have caused the cash-to-three-month spread to narrow to about $176 per ton by Wednesday, down from $436 per ton at Monday’s close.
While the recent inflows have eased immediate pressure, the underlying physical tightness in the global copper market persists due to factors like supply disruptions, uneven inventories, and robust demand from sectors such as power networks, construction, electronics, electric vehicles, and AI infrastructure. Uncertainty surrounding US tariffs has also distorted global copper flows, leading to large volumes of copper heading to the US and making supplies in other markets appear tighter. This dynamic could lead to further volatility if tariff policies change or if LME stocks start to fall again.
