One of the largest ever squeezes in the copper market eased somewhat on Tuesday after traders including Trafigura Group made significant deliveries of metal to the London Metal Exchange.
The closely watched spread between copper for immediate delivery and metal delivered three months out dropped to $248 a metric ton, down from a backwardation of as much as $545 seen Monday.
While that’s still a very wide spread, traders said the immediate pressure in the market had lessened after the LME’s global warehouse network saw the biggest increase in readily available copper inventories since April, with a gain of more than 20,000 tons.
Trafigura was behind a significant share of the copper that was placed onto the LME on Tuesday, according to people familiar with the matter, although other traders were also said to be arranging to bring metal onto the exchange. People familiar with the moves said they expected additional metal to be placed on warrant on the LME in the coming days.
A spokesperson for Trafigura declined to comment.
Another key one-day price spread know as Tom/next also eased after spiking to levels last seen during a historic market squeeze in 2021. Copper for delivery on Wednesday on the LME traded at a premium of $79 to contracts for a day later at Tuesday’s close. It had earlier rose to as much as $110.
Tom/next represents the price to roll positions forward by one day. Tuesday’s flare-up points to stress for holders of short positions just ahead of the third Wednesday of the month, which is the main focus of liquidity in the exchange’s contracts.
Commodities traders have been watching copper closely as a surge of shipments to the US shrank LME stockpiles that underpin global benchmark contracts. The crunch has been driven in large part by an arbitrage trade in response to the prospect of US import tariffs, helping drain inventories elsewhere.
The steep premium for prompt supplies creates a lucrative opportunity for traders to ease the tightness by selling copper in the near-term, while simultaneously buying back longer-dated contracts at a discount.
The on-warrant stockpiles in LME warehouses saw increases across Asia and the US. Before a recovery that started gradually last Tuesday, they had shrunk 75% from a mid-April high.
The US Commerce Department was due to make a recommendation on copper tariffs by the end of June, but that deadline has come and gone with no announcement from the White House. Copper has continued to flowing to US ports in the meantime, encouraged by higher domestic prices.
About 56,000 tons arrived in the US in the first two weeks of August, according to shipping data compiled by IHS Markit. Excluding July’s record 223,000-ton inflow, August shipments are in line with the monthly average over the past year or so.
Copper has gained about 13% this year, also boosted by optimism over growing demand from data centers and renewable energy. That’s lifted earnings at major miners including Rio Tinto Group and BHP Group. The metal accounted for more than half of BHP’s full-year revenue for the first time.
Benchmark three-month futures on the LME were 1.2% lower to settle at $13,986.50 a ton. Other LME base metals also fell.
In China, elevated copper prices have curbed buying appetite, pushing inventories in Shanghai, the country’s trading and consumption hub, steadily higher over the past weeks to around 80,000 tons, according to data from Shanghai Metals Market.
(By Julian Luk, Jack Ryan and Jack Farchy)
