Copper price eases as LME inventories surge

London Metal Exchange on-warrant copper inventories have surged by more than 50% in three days, easing fears of an acute supply squeeze and sharply narrowing a key market spread.

On-warrant copper stocks rose by 63,000 tonnes between Monday and Wednesday, with increases across Asia, the U.S. and Europe, according to Benchmark Mineral Intelligence. Total LME stocks gained 28,000 tonnes as metal flowed onto the exchange and a significant amount of previously cancelled inventory was re-warranted.

“The deliveries alleviate the fears of extreme nearby tightness for now, and LME inventories will be closely watched for signals on price movements,” Benchmark copper analyst Albert Mackenzie said.

The influx shows how quickly high prices for immediately available metal can pull copper back onto the exchange, the expert notes. It also highlights unusual trading conditions created by the uncertainty over U.S. tariffs, which have drawn large volumes of copper into the country and made supplies elsewhere appear tighter.

Backwardation bites

The deliveries came after falling LME inventories drove copper into a steep backwardation, where metal for immediate delivery commands a premium over later-dated contracts. On-warrant stocks had fallen by about 100,000 tonnes in July after declining by 75,000 tonnes in June.

The LME cash-to-three-month backwardation widened to nearly $550 per tonne at points on Monday, its highest in more than five years. More than $400 per tonne of that premium was concentrated between the August and September contracts.

Those premiums gave holders of physical copper a strong financial incentive to deliver metal into LME warehouses. Market sources told Benchmark they believed one large trading company was behind the deliveries, while sources in China said some metal may also have come from Chinese market participants.

The resulting increase in available inventory rapidly eased the squeeze. The cash-to-three-month spread fell 60% to about $176 per tonne Wednesday from $436 per tonne at Monday’s close. Three-month copper traded at $13,885 per tonne Wednesday, down nearly $300 per tonne since Monday.

Tariff distortions

The inventory swing comes as U.S. tariff uncertainty continues to reshape global copper flows, creating regional imbalances that can exaggerate perceptions of physical scarcity.

“Lots of the current odd dynamics have come as huge amounts of copper heads to the U.S. due to the high arbitrage caused by tariff uncertainty, making the global market feel tighter than it really is,” Mackenzie said. “As long as there is uncertainty on tariffs, situations like this could arise again.”

The latest deliveries have relieved the immediate pressure, but the speed at which inventories fell in June and July leaves traders watching warehouse movements for signs that tightness is returning. The analyst warned that continued tariff uncertainty could keep diverting metal towards the U.S., leaving the global market vulnerable to further bouts of volatility.