Why the London Copper Squeeze Is Nearing Record Highs

London copper is being pulled into a near-term supply squeeze. The clearest evidence is the market structure: copper available for immediate delivery is trading far above contracts for later delivery, while LME warehouse inventories have fallen for 42 consecutive sessions. On August 17, three-month copper reached $14,396 a tonne—close to the January record of $14,527.50—while the spot-to-three-month spread widened to about $545 a tonne.

That combination points to intense competition for deliverable metal. It does not, by itself, prove that the world is running out of copper for the year. Instead, it shows that copper is in the wrong place for buyers who need it now.

The key signal is extreme backwardation

In a normally supplied market, later-dated futures may trade above spot copper because buyers pay for storage, financing and insurance. The opposite structure is called backwardation: the cash or nearby contract trades above contracts for later delivery.

LME copper’s August–September premium reached $370 a tonne on August 14. The cash-to-three-month spread subsequently widened to between roughly $478 and $545 a tonne, levels last associated with the 2021 squeeze.

The message from that spread is straightforward: buyers place a much higher value on copper that can be delivered immediately than on a promise of copper arriving later. Nearby shorts therefore face a more difficult choice. They can source exchange-grade metal for delivery, or buy back their futures positions—potentially competing with other short sellers for the same scarce supply.

LME inventories are shrinking—and availability matters more than the headline total

LME copper stocks fell to 204,975 tonnes after 42 straight sessions of declines, their lowest level since February according to reporting cited in the supplied market coverage. Nearly half of the remaining material was already earmarked for withdrawal, leaving about 94,875 tonnes available in the LME system during the week of August 10–14.

That distinction is important. Exchange inventories are not all immediately available to settle nearby contracts: some copper has already been committed for removal, even if it remains in the warehouse total. Repeated withdrawals reduce the buffer supporting the LME’s prompt contracts and make a sudden delivery scramble more likely.

The decline has also been rapid. LME stocks have fallen by more than 40% since May, with regular batches of several thousand tonnes leaving the warehouse network. The shrinking buffer helps explain why relatively modest changes in buying or selling pressure are producing unusually large movements in nearby spreads.

Prospective U.S. tariffs are redirecting copper rather than creating new demand

A major part of the squeeze is geographic. Traders have been sending refined copper to the United States ahead of a possible tariff decision, seeking to capture the premium that could arise if imports become more expensive. U.S. refined copper imports exceeded 200,000 tonnes in July, the highest monthly level in 12 years according to the supplied reporting.

Those shipments can tighten the rest of the market even if they do not represent an immediate rise in global end-use consumption. Copper moved into U.S. ports is less available to buyers in Europe, China and other trading hubs, including the LME warehouse system. The result is a regional dislocation: inventories build in the United States while exchange-available stocks outside it decline.

This also creates a clear reversal risk. If tariff expectations weaken, some of the metal accumulated in the United States could become available to the wider market. That would reduce the premium for prompt copper, although the timing and scale of any reversal are uncertain.

China is competing for supply while smelters face feedstock constraints

China is adding a second source of pressure. Chinese refined-copper imports reached a nine-month high in June, while domestic supply was affected by smelter maintenance. The Yangshan copper import premium—a gauge of Chinese buying interest—rose to a four-year high of $115 a tonne, and Shanghai Futures Exchange inventories fell from 433,458 tonnes in March to 69,610 tonnes by late July.

At the same time, Chinese smelters are facing tighter access to copper concentrate and disrupted scrap flows. A forecast cited in the supplied coverage put August refined output at about 1.05 million tonnes among producers representing 81.97% of China’s smelting capacity, down 2.83% from a year earlier.

The squeeze is therefore operating in both directions: China is drawing refined copper from the international market while its own refining system is constrained by feedstock availability. A reported export restriction on copper and cobalt concentrates from the Democratic Republic of Congo adds to the pressure on raw materials, although the supplied Reuters analysis said the restriction alone would not materially change global copper balances. Its greater effect may be to tighten an already stressed concentrate market.

Why short sellers could amplify the move

Backwardation raises the cost of carrying a short position into contract expiry. A short seller that cannot deliver the required exchange-grade copper may need to repurchase the contract or locate warrants and physical metal from another holder. If several participants need prompt copper at the same time, their buying can push the nearby price higher faster than later futures.

That is why a physical squeeze can produce a disproportionate move in the front of the curve. The underlying issue is not simply bullish sentiment; it is the limited pool of metal that can satisfy immediate delivery obligations. The supplied market reports describe the latest spread as the widest since the 2021 squeeze, when similar conditions prompted exchange intervention.

What the LME can contain—and what it cannot fix

The LME has tools intended to reduce disorderly trading when available stocks and nearby positions become dangerously concentrated. Its rules include lending requirements, controls on tom-next backwardation and a backwardation cap; the exchange can also use deferred-delivery mechanisms under specified conditions.

These measures can moderate the mechanics of a squeeze by encouraging metal lending or limiting how far certain nearby spreads can move. They do not create new copper. They cannot reverse shipments already sent to the United States, refill warehouses after cancellations or immediately restore Chinese smelter output.

The distinction matters because the current stress reflects both market positioning and physical geography. Regulatory controls may reduce the risk of a disorderly corner, but the market can remain tight if deliverable inventory stays low.

The next test: fresh deliveries or a rapid unwind

The most important near-term indicators are new LME deliveries, the reversal of cancelled warrants and the behavior of the cash-to-three-month spread as prompt contracts expire. A meaningful flow of new metal into LME warehouses would ease delivery risk. If stocks continue falling and nearby shorts still need copper, the squeeze could carry LME prices above the January record.

That outcome is plausible, not guaranteed. The January high was $14,527.50 a tonne, while the August 17 market coverage put three-month copper at $14,396. Prices could break the record if physical tightness and short covering intensify. They could also retreat sharply if U.S. tariff expectations fade, Chinese buying slows or warehouse metal returns to the market. The evidence currently supports severe near-term tightness more strongly than it supports a permanent global shortage.