LME copper spot premium hits 28-year high! The three giants lock in 160,000 tons of positions, shorts deeply trapped in a “physical squeeze” crisis.
The London Metal Exchange copper market has erupted in intense turmoil, with spot prices soaring above futures, indicating large-scale inventory withdrawals are underway. At the heart of this tug-of-war is the contradiction between the huge long positions held by three entities and the severely insufficient deliverable inventory, forcing short sellers to either meet delivery obligations or roll their positions at a hefty cost.
On Wednesday, the expiring copper contract's premium over the next day's contract (Tom/next spread) shot up to $64—a single-day surge that ranks among the largest increases since records began in 1998. On Monday, the spread was still in a narrow discount, highlighting the market's tension in just two days of reversal.
LME data shows that as of last Thursday, the accumulated long positions held by three independent entities accounted for at least 30% of the open interest in the January contract. If held until expiry, these positions entitle the holders to over 160,000 tons of copper, exceeding the total amount of readily deliverable stock in the LME warehouse network. Traders holding short positions must deliver physical copper to settle, or else face heavy losses when rolling their positions.
Spot Premium Signals Inventory Battle
The Tom/next spread is a key measure of immediate demand in the LME warehouse network, with sharp fluctuations typically occurring ahead of monthly contract expiries. This surge coincides with Wednesday's expiry of the January main contract, providing traders with a final window to adjust their positions.
A spot premium structure means rising immediate demand or tight deliverable inventory. In the current scenario, the 160,000-ton positions locked by three entities stand in stark contrast to limited deliverable inventory, forcing short sellers to either find physical copper for delivery or pay a high premium to roll positions to the next month. This “physical squeeze” puts shorts on the defensive.
Structural Supply Tightness Extends to 2028
Although spot premiums in Tom/next spreads ahead of monthly expiries are not unusual, the structure of longer-term spreads points to deeper supply constraints in the copper market. For most monthly contracts through the end of 2028, the LME copper market shows spot premiums, reflecting expectations of future supply shortages.
Many analysts and traders expect a severe copper supply shortfall by 2028. This trend might drain global inventories and drive prices sharply higher. Earlier this month, copper prices surged to a historic high above $13,400 per ton, reflecting multiple factors: hindered mine output, a surge in US imports straining supply elsewhere, and investor bets that AI industry development will spur demand.
Geographic Imbalance in Inventories Adds to Tightness
Global copper inventories are currently ample, but regional distribution is severely imbalanced. Large stocks are concentrated in US warehouses, after traders shipped record amounts of copper to the US in anticipation of tariff policy. This “once in a lifetime” arbitrage opportunity came from surging copper prices on New York’s Comex exchange, but the recent spike in LME spot prices means US futures have now flipped to a discount.
This week, previously vacant LME warehouses in New Orleans started to receive small copper deliveries, and the surge in the Tom/next spread could incentivize more copper to flow into US warehouses. LME data shows that as of last Thursday, about 20,000 tons of privately held copper were available for prompt delivery to New Orleans and Baltimore, with another 50,000 tons distributed across off-exchange warehouses in Asia and Europe.
On Tuesday, LME copper stocks increased by 8,875 tons to 156,300 tons, mainly from deliveries in Asian warehouses and a small inflow in New Orleans. Despite the dramatic spread volatility, the LME benchmark three-month copper contract was only slightly affected, as US President Trump's bid to control Greenland triggered a broad stock selloff, pushing copper prices down as much as 1.4% on the day.
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