The global copper market is undergoing mounting pressure as inventories at the London Metal Exchange (LME) fall to critically low levels, trade flows shift in anticipation of potential U.S. tariffs, and smelters face escalating raw material shortages. Spot copper prices surged to a $345-per-tonne premium over three-month futures on Monday—marking one of the steepest backwardations seen since 2021 and raising alarm across global metals markets.

Backwardation, a market condition where near-term contracts are priced higher than longer-dated ones, is often interpreted as a signal of tightening supply. The $345-per-tonne premium for LME spot copper over three-month futures, recorded Monday, underscores immediate shortfalls in available material and growing urgency among buyers.

According to trading data, this level of backwardation has not been seen since the market dislocations of 2021, when COVID-related disruptions and soaring demand for green energy infrastructure led to extreme price movements in base metals. Readily deliverable copper inventories held in LME warehouses have declined by approximately 80% since the start of the year, and now amount to less than a single day’s worth of global usage, analysts report. The pace and extent of the drawdown have raised concerns about the ability of the market to meet short-term physical demand.

U.S. Trade Policy Sparks Global Shipping Race

A major factor behind the rapid inventory depletion is increased copper movement toward the United States, amid concerns about possible trade restrictions. In February, President Donald Trump instructed the U.S. Commerce Department to investigate whether copper imports pose a threat to national security, under the framework of Section 232 of the Trade Expansion Act. The department has up to 270 days to complete the review, placing the deadline in late November.

The investigation triggered a sharp increase in shipments to U.S. ports, as traders and manufacturers sought to build inventory ahead of any potential tariffs or quotas. In April, refined copper imports into the United States surged past 200,000 tonnes—the highest monthly total in over a decade, according to customs data.

Market analysts say the rush to preemptively ship copper to the U.S. has created a short-term drain on inventories held elsewhere, particularly at LME warehouses in Europe and Asia. The result is a market that is increasingly fragmented, with physical availability becoming localized and distorted by policy expectations.

Smelters in China Facing Raw Material Shortages

At the same time, the copper supply chain is facing strain at the upstream end, particularly in the smelting sector. Smelters in China, the world’s largest copper refiner, are experiencing an acute shortage of copper concentrate—the semi-processed ore that is converted into refined metal.

The imbalance has led to a rare inversion in standard pricing dynamics. According to Benchmark Mineral Intelligence, spot treatment charges (TC) and refining charges (RC) have dropped to $45 per tonne and -4.5 cents per pound, respectively. This indicates that some smelters are paying miners to convert their material, a reversal of the traditional relationship where miners pay smelters for processing services.

The low TCRC levels are symptomatic of excess smelting capacity in China and insufficient supply of raw material, a dynamic that has emerged amid reduced mining output, shipping bottlenecks, and intense competition for available concentrate.

LME Intervenes, but Market Signals Broader Pressure

In response to the extreme backwardation and rising volatility, the LME introduced regulatory measures last week aimed at preventing market manipulation or abuse by individual traders. The exchange has rules requiring entities that hold more than 50% of available spot contracts and inventories to lend their positions back at a capped rate, via the Tom/Next (tomorrow/next day) spread.

For Monday, that cap stood at $49.73 per tonne, or 0.5% above the spot price. However, trading data showed the spread briefly surged to $69, suggesting that the cap was not triggered—either because no individual entity exceeded the 50% threshold, or because the price movements were driven by broad-based demand rather than any one trader.

This differs from recent interventions in the aluminum market, where companies such as Mercuria Energy Group were compelled to lend back positions under LME rules to prevent near-term price dislocations. Complicating the picture, the backwardation is not limited to short-term contracts. Futures contracts through June 2026 are now also showing backwardated pricing, a reversal from just six months ago, when longer-dated copper contracts were trading at a premium—reflecting a perception of ample future supply at the time.

Market participants interpret this as evidence that the current squeeze is not just a short-term dislocation, but potentially indicative of a longer-lasting structural imbalance.

Limited Movement on U.S. Futures Market

While the London market reflects escalating pressure, trading on the U.S.-based COMEX has been more subdued. On Monday, July copper futures slipped 0.2% to $4.83 per pound, equivalent to $10,626 per tonne. Analysts attribute the muted reaction on COMEX to the recent influx of physical copper into the U.S., which has temporarily buffered domestic supply conditions. However, concerns remain that U.S. markets could experience a delayed impact if global supply chains remain constrained and the speculative buildup of inventory is not sustained.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.