The global copper market is undergoing an intense period of disruption as falling inventories, speculative pressures, and the threat of U.S. tariffs combine to push prices into one of the steepest backwardations in recent history. Adding to the volatility, Chinese copper smelters are now accelerating exports to the London Metal Exchange (LME), a move that could alleviate international shortages but risks further tightening domestic supply in China.

Large-Scale Export Plans from Chinese Smelters

According to sources cited by Bloomberg and Reuters, Chinese copper producers are preparing to ship significant volumes of refined copper to LME warehouses across Asia in the coming weeks. At least 30,000 tonnes of refined copper are expected from major smelters, including Jiangxi Copper and Tongling Nonferrous Metals Group, while total shipments from nearly 10 Chinese smelters may reach 40,000 to 50,000 tonnes, according to unnamed individuals with knowledge of the matter.

These exports appear to be driven by the urgent need to cover short positions on the LME. In recent weeks, the copper market has experienced unprecedented tightness, with the premium for spot copper over three-month futures contracts peaking at $280 per tonne on Monday, before falling sharply to $94 per tonne by Wednesday, as news of the export plans began circulating.

This extreme pricing pattern, known as backwardation, typically signals a shortage of available material for immediate delivery and is considered a key indicator of market stress.

LME Inventories Near Historic Lows

The backdrop to this activity is a dramatic collapse in global exchange inventories. Readily available LME copper stocks have dropped approximately 80% this year, leaving just enough inventory to cover less than a single day of global copper usage.

This depletion has been exacerbated by a global rush to ship copper to the United States in anticipation of possible tariffs. A massive price gap of nearly $1,000 per tonne has opened between U.S. and LME prices, encouraging arbitrage and inventory reallocation. In April, U.S. imports of refined copper reached over 200,000 tonnes, marking the highest level in more than a decade.

With a significant share of global refined copper being produced in China, the latest export push threatens to strain domestic supply. According to Reuters, more than 20 Chinese copper producers are registered with the LME, and Chinese-origin copper accounted for 43% of LME stocks in May, down from 59,725 tonnes in April.

Domestic Market Risks in China

While export volumes may relieve some of the pressure in LME-traded markets, they could tighten the Chinese market in turn. Domestic warehouse inventories, which had also been falling earlier this year, have since stabilized, in part due to softening demand within China, the world’s largest copper consumer. However, a renewed focus on exports raises the possibility that China itself could face backwardation conditions, should domestic supply become constrained while internal demand remains steady or rebounds.

Additionally, Chinese copper smelters are currently facing intense financial pressure due to structural overcapacity. After years of rapid investment and expansion, Chinese refiners are now competing for limited concentrate supplies, leading to unprecedented pricing dynamics.

Spot treatment charges—the fees smelters receive for converting concentrate into refined metal—have turned negative for the first time ever, reflecting a situation where smelters are now paying miners to secure feedstock. This is seen as unsustainable in the long term and highlights the extreme imbalance between refining capacity and raw material availability.

Tariff Speculation Adds to Volatility

The root of some of the recent market distortion lies in tariff speculation stemming from a February directive by U.S. President Donald Trump. The U.S. Commerce Department was ordered to investigate the need for import tariffs on copper, with a final report expected within 270 days.

Although no policy action has yet been taken, the announcement triggered speculative buying and shipment redirection, contributing to the current divergence between LME and U.S. copper prices.

Exchange Response and Broader Market Dynamics

In response to the extreme backwardation, the LME implemented measures last week aimed at curbing price spikes caused by concentrated trading positions. These included borrowing requirements for holders of large spot positions—a mechanism previously used in the aluminum market, notably involving Mercuria Energy Group.

However, data from the LME suggests that the current copper squeeze is not solely the result of a few large traders, but rather systemic market-wide stress. Recent short-term price spreads have moved independently of any single dominant position, indicating broader structural pressure.

On the COMEX exchange in New York, copper prices have also reflected market dislocation. July copper contracts were trading sideways on Wednesday at $4.88 per pound ($10,760 per tonne). For comparison, LME prices were at $9,703 per tonne, underscoring the scale of the arbitrage between the two exchanges.

Meanwhile, September COMEX contracts rose slightly to $4.93 per pound, and December contracts were just shy of the $5.00 mark, suggesting expectations of continued tightness well into the second half of the year. The evolving copper market scenario is having ripple effects across the global value chain. Refiners, traders, and industrial consumers are adjusting hedging strategies, sourcing decisions, and logistics planning in response to unprecedented price signals and physical constraints.

At the same time, governments and policymakers are closely watching supply dynamics, especially as copper plays a vital role in energy transition infrastructure, from electric vehicles to renewable power systems.

If Chinese exports continue at current rates, and without a material improvement in concentrate supply or refined output elsewhere, the risk remains that both global and domestic markets may see further price dislocations in the months ahead.

 

 

 

 

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.