London Metal Exchange (LME) spot copper prices have surged dramatically, surpassing forward futures, indicating that traders may be preparing for substantial withdrawals from the exchange's warehouses. The price of copper contracts expiring on Wednesday traded at a premium of $64 over those expiring on Thursday, a condition known as "backwardation" that typically signals rising immediate demand. This sharp increase, occurring after the "tomorrow/next day" spread was in a slight contango just on Monday, represents one of the largest single-day swings since price records began in 1998. This volatility has introduced a fresh wave of turbulence into the LME copper market. Earlier this month, copper prices had skyrocketed to a record high above $13,400 per ton. Driven by constrained mine output and surging shipments to the United States depleting supplies elsewhere, traders have rushed into the market; simultaneously, many investors are betting that the booming artificial intelligence industry will fuel a surge in demand.
The "tom/next" spread is viewed as a crucial gauge of metal demand within the LME warehouse network, which underpins its benchmark futures contracts. This spike in the spread occurred just before the expiry of the LME's key one-month contract on Wednesday, providing a final opportunity to trade these positions. LME data shows that, as of last Thursday, three separate entities held collective long positions accounting for at least 30% of the open interest in the January contract. If held to expiry, these positions would entitle holders to withdraw over 160,000 tons of copper—exceeding the total amount of spot metal currently available in the entire LME warehouse network. Meanwhile, holders of short positions who maintain their contracts until expiry are obligated to deliver physical copper for settlement; if they seek to postpone delivery by rolling their positions, the exploding tom/next spread would inflict significant losses upon them.
While the tom/next spread often moves into backwardation ahead of a monthly contract expiry, longer-dated spreads also point to deeper structural supply constraints across the copper industry—most monthly spreads are in backwardation all the way through to the end of 2028. Many analysts and traders anticipate the market will fall into a significant deficit by then, a trend that could drain global inventories and push prices higher. Current global stock levels are still adequate, but a large portion is concentrated in U.S. warehouses, a result of record shipments sent by traders anticipating tariff policies. This "once-in-a-generation" trade opportunity was initially fueled by a spike in COMEX copper prices, but the recent surge in LME spot prices has now pushed U.S. futures into a contango.
The substantial premium for U.S. copper contracts has now vanished. This week, a small quantity of copper was delivered to the previously empty LME warehouse in New Orleans, and the sharp rise in the tom/next spread may incentivize further metal to flow into U.S. warehouses. LME data indicates that, as of last Thursday, approximately 20,000 tons of privately held copper were available for delivery to New Orleans and Baltimore, with an additional over 50,000 tons held in off-exchange warehouses in Asia and Europe. Boosted by arrivals at Asian warehouses and a small inflow into New Orleans, LME copper inventories increased by 8,875 tons to 156,300 tons on Tuesday. The volatility in spreads had little impact on the benchmark LME three-month copper contract, which fell by as much as 1.4%, influenced by a broad market sell-off triggered by former U.S. President Trump's push for control over Greenland.
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