Copper market facing pressure as LME stockpiles drop and backwardation increases

The global copper market is facing significant challenges as stockpiles at the London Metal Exchange (LME) plummet to alarmingly low levels, trade routes are being redirected in anticipation of potential U.S. tariffs, and smelters are grappling with increasing shortages of raw materials. Spot copper prices experienced a drastic surge to reach a premium of $345 per tonne over three-month futures on Monday, marking one of the most substantial backwardations observed since 2021, causing concern within the global metals industry.

Backwardation, a market situation where short-term contracts are valued higher than those for longer periods, is typically seen as an indication of tightening supply. The recent $345-per-tonne premium for LME spot copper compared to three-month futures highlights immediate deficiencies in available inventory and a heightened sense of urgency among buyers.

Experts analyzing trading data note that this level of backwardation has not been witnessed since the market disruptions of 2021, triggered by COVID-related interruptions and a spike in demand for green energy structures involving base metals. Current data reveals that the accessible copper inventory held at LME warehouses has plummeted by nearly 80% since the onset of the year and now amounts to the equivalent of less than a single day’s global consumption, raising apprehensions about the market’s capacity to fulfill short-term physical demand.

One significant contributor to the fast-paced stock depletion is the increased flow of copper heading towards the United States amidst concerns surrounding anticipated trade limitations. Following President Donald Trump’s directive in February for the U.S. Commerce Department to scrutinize whether copper imports pose a risk to national security under Section 232 of the Trade Expansion Act, experts observed a significant rise in shipments to U.S. ports to ensure inventory buildup before potential tariffs or quotas. This rush to proactively transport copper to the U.S. led to a temporary drain on stocks held elsewhere, particularly at LME warehouses in Europe and Asia.

Furthermore, the copper supply chain is encountering strain at its upstream sector, especially within the smelting industry. The most substantial copper refiner globally, China’s smelters, are grappling with a severe shortage of copper concentrate, the transitional material transformed into refined metal. This imbalance has resulted in a rare convers

As a reaction to the intense backwardation and escalating volatility observed, the LME implemented regulatory actions last week to deter market manipulation or exploitation by individual traders. The pursuit of this abrupt demand for copper and uncertain future supply scenarios underscores the fragility of the global copper market and hints at changes ahead.