Copper market shocked by "life and death moment": price difference soared to $100 overnight! LME market faces squeezing risk again.

The London Metal Exchange (LME) copper spot prices have recently surged, leading to a drastic increase in the premium for forward contracts. A closely watched key short-term price spread - the Tom/next spread - soared to $100 per ton, reaching its highest level since the historic supply crisis of 2021, highlighting extreme tension in the spot market. The sharp fluctuations in the price spread have distorted the market structure. The premium of copper contracts expiring this Wednesday over the next day's expiring contracts (the spot premium structure) reached $100 at one point. This spread was in a slight discount state on Monday and its surge is extremely rare since recorded data from 1998. This has added a new dimension of volatility to the already hot LME copper market. Earlier this month, copper prices had soared to over $13,400 per ton, a historical high. This rapid fluctuation occurred on the eve of the expiration of the LME main January contract. The Tom/next spread provided traders with a final opportunity to adjust these expiring positions. LME data showed that as of last Friday, three independent entities held at least 30% of the open long positions in the January contract. If held until expiry, they had the right to extract over 130,000 tons of copper - a number exceeding the current available inventory in the LME warehouse network. At the same time, the holders of short positions must deliver physical copper for settlement. The surge in the Tom/next spread means that if they choose to roll over instead of delivery, they will face huge losses. The spread rising to $100 per ton reached its highest level since the major squeeze event of 2021, when the LME was forced to urgently modify the rules to maintain market order. Structural shortages support long-term premiums Although the Tom/next spread usually turns into a spot premium before the monthly contract expires, such an extreme level is rare. This is partly due to LME rules that require investors holding a large number of long positions to lend metal back to the market at a limited rate. The spread had previously touched a premium of $65 per ton, equivalent to 0.5% of the official spot price of the previous day. This was the maximum lending rate limit allowed when holders held stocks and spot contract positions that accounted for 50% to 80% of available inventory for immediate lending. The spread fell in the last few minutes of trading, ending at $20 per ton at 12:30 pm London time. Analysts point out that although the Tom/next spread is volatile, the overall price curve of copper also indicates broader structural supply constraints. Most monthly contract spreads until the end of 2028 show a spot premium structure, indicating that the market expects to continue to face supply shortages over the next few years. Many analysts and traders expect severe deficits by then, which could deplete global stocks and further drive prices up. Regional inventory imbalances, U.S. warehouses become "reservoirs" Global copper inventories are still relatively high, but most of them are concentrated in U.S. warehouses. Traders had previously shipped a record amount of copper to the United States to avoid potential tariffs. This rare arbitrage opportunity was driven by the surge in copper prices on the New York Commodity Exchange (COMEX), but the recent surge in LME spot prices has caused U.S. futures trading to be in contango. This week, a small amount of copper has been shipped to the previously vacant LME New Orleans warehouse. The surge in the Tom/next spread may encourage more metal to flow into U.S. 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, while over 50,000 tons of copper are stored outside the exchange system in Asia and Europe. Driven by the influx of Asian warehouse deposits and a small amount of inflow into New Orleans, LME copper stocks increased by 8,875 tons on Tuesday, reaching 156,300 tons. The volatility in the spread market had a limited impact on the LME benchmark three-month copper futures price, which fell by 1.6% to settle at $12,753.50 per ton, partly due to widespread selling triggered by Trump's push to control Greenland.