The copper market is caught in a "crazy warehouse squeeze"! Cash premiums hit a 28-year record, and fears that huge long positions may exhaust LME inventory.

It is noticed that the spot copper price on the London Metal Exchange (LME) has surged significantly and exceeded the forward futures, indicating traders may be preparing to withdraw a large amount of goods from the exchange's warehouse. The price of copper contracts expiring on Wednesday is $64 higher than those expiring on Thursday, a condition known as "spot premium" which typically indicates an increase in spot demand. On Monday, the "tom/next" spread was still slightly in backwardation, making this surge one of the largest since price records began in 1998. This fluctuation has brought a new round of turmoil in the LME copper market. Earlier this month, copper prices soared to historical highs of over $13,400 per ton. As mine production was disrupted and shipments to the US surged, leading to depletion of supplies in other regions, traders flocked to the market; at the same time, many investors bet on the booming artificial intelligence industry driving a surge in demand. Key one-day copper price differentials trade at a huge premium The "tom/next" spread is seen as an important indicator of metal demand in the LME warehouse network, which is the cornerstone of its benchmark futures contract trading. This increase in spread occurred before the LME's main January contracts expired on Wednesday, providing a last-minute opportunity for trading positions. LME data shows that as of last Thursday, three independent entities held long positions totaling at least 30% of the open January contract. If held until expiry, these positions will have the right to extract over 160,000 tons of copper - exceeding the current spot inventory of the LME warehouse network. Meanwhile, holders of short positions, if they hold the contract until expiry, will need to deliver physical copper for settlement; if they wish to postpone delivery through rollover, the sharp rise in the tom/next spread will expose them to huge losses. Structural constraints Before the expiration of monthly contracts, spot premium often occurs in the tom/next spread, but longer-term spreads also indicate deeper structural supply constraints in the entire copper industry - most monthly spreads until the end of 2028 have shown spot premiums. Many analysts and traders expect that by then, the market will be in severe short supply, depleting global stocks and pushing prices higher. Currently, global inventory levels are still sufficient, but most of the inventory is concentrated in US warehouses, as traders had previously shipped record amounts to the US in anticipation of tariff policies. This "once-in-a-lifetime" trading opportunity was driven by the soaring copper price on the New York Commodity Exchange (Comex), but the recent surge in spot prices on the LME has caused US futures prices to turn into backwardation. The huge premium in US copper contracts has disappeared This week, a small amount of copper has been delivered to the previously vacant LME New Orleans warehouse, and the drastic increase in the tom/next spread may stimulate more goods to enter US warehouses. LME data shows that as of last Thursday, about 20,000 tons of privately held copper can be delivered to New Orleans and Baltimore at any time, in addition to over 50,000 tons of copper stored in outside exchanges in Asia and Europe. Driven by arrivals at Asian warehouses and slightly increased flows into New Orleans, LME copper inventories increased by 8,875 tons to 156,300 tons on Tuesday. The price spread fluctuations have little impact on the LME benchmark March copper futures contract, as copper prices fell by as much as 1.4% due to the widespread sell-off in the stock market sparked by US President Trump's push to control Greenland Island.