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Contracts due in one day traded at a $98 a ton premium to those expiring a day later, hitting the highest level since an historic short squeeze that rocked the LME in 2021.
The burgeoning supply squeeze has been fueled by US President Donald Trump's plans to impose import tariffs on the metal. The proposal — which was formally set in motion in February — has caused copper prices to rocket in New York, and traders have been shipping record volumes to the US to take advantage of the surge before any levies are imposed.
That trend has drained inventories in the rest of the world, and Goldman Sachs analysts warned on Thursday that shortages will get worse before levies come into effect, with the bank expecting a decision by September.
The spike in the so-called Tom/next spread — known as a backwardation — can impose huge losses on traders and industrial hedgers with short positions on the LME. It creates an incentive for shorts to deliver metal against their contracts rather than buying them back at high prices, and rolling them forward at a loss.
With readily available LME inventories now reaching critically low levels after declines of nearly 80% this year, there's very little copper on hand for shorts to close out their positions. The huge backwardation on Tom/next and other longer-dated spreads reflect the growing cost of buying themselves out of their obligation to deliver.
Outright copper prices also rallied strongly on Thursday, with the LME's benchmark three-month contract climbing as much as 1.8% to $9,888 a ton. Prices jumped as much as 3.7% in New York, outstripping gains on the LME and creating even stronger incentives for traders to ship metal to the US.
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