LME copper spot premium hits a 28-year high! The three giants lock in 160,000 tons of positions, and shorts are deeply trapped in a "physical squeeze" crisis

The London Metal Exchange copper market has experienced severe turbulence, with spot prices soaring above futures, indicating a large-scale inventory withdrawal is underway. The core of this long-short battle lies in the contradiction between the massive long positions held by three entities and the severely insufficient deliverable inventory, putting short traders under delivery pressure or forcing them to roll over at a high cost.

Copper contracts expiring on Wednesday were at a premium of $64 over the contracts expiring the next day (Tom/next spread), marking one of the largest single-day increases recorded since 1998. On Monday, this spread was still in a narrow discount state, and the reversal within just two days highlights the market's tension.

LME data shows that as of last Thursday, the long positions held by three independent entities accounted for at least 30% of the open interest in the January contracts. If held to expiration, these positions would be entitled to over 160,000 tons of copper, a figure that exceeds the total amount of inventory available for immediate delivery in the LME storage network. Traders holding short positions must deliver physical copper to complete the settlement; otherwise, they will incur significant losses during the rollover process.

Spot Premium Signals Inventory Battle

The Tom/next spread is a key indicator of immediate demand in the LME storage network, and its sharp fluctuations typically occur just before the expiration of monthly contracts. The recent surge in this spread coincides with the expiration of the January main contract on Wednesday, providing traders with a final window for position adjustments.

The spot premium structure indicates rising immediate demand or tight deliverable inventory. In the current situation, the 160,000 tons locked in by the three entities starkly contrasts with the limited deliverable inventory, forcing short traders to either seek physical copper for delivery or pay high premium costs to roll over their positions to next month. This "physical squeeze" situation puts shorts in a passive position.

Structural Supply Tightness Extends to 2028

While it is not uncommon for the Tom/next spread to show spot premiums before the expiration of monthly contracts, the longer-term spread structure indicates deeper supply constraints in the copper market. Most monthly spreads in the LME copper market until the end of 2028 show spot premiums, reflecting market expectations of future supply shortages.

Many analysts and traders expect the copper market to face a severe supply gap by 2028. This trend could deplete global inventories and drive prices significantly higher. Earlier this month, copper prices soared to historic highs of over $13,400 per ton, reflecting multiple factors such as mining output disruptions, a surge in U.S. imports leading to supply tightness in other regions, and investors betting on the growth of the artificial intelligence industry driving demand.

Imbalance in Inventory Geographic Distribution Intensifies Tension

Global copper inventories are currently at sufficient levels, but the regional distribution is severely imbalanced. A large amount of inventory is concentrated in U.S. warehouses, as traders previously anticipated tariff policies and shipped a record amount of copper to the U.S. This "once-in-a-lifetime" arbitrage opportunity arose from soaring copper prices on the New York Comex exchange, but the recent surge in LME spot prices has turned U.S. futures into a discount trading scenario This week, the previously vacant LME warehouse in New Orleans began accepting small batches of copper deliveries, and the surge in the Tom/next price spread may incentivize more copper to flow into U.S. warehouses. LME data shows that as of last Thursday, approximately 20,000 tons of privately held copper are ready for delivery to New Orleans and Baltimore, with over 50,000 tons of inventory distributed in off-exchange warehouses in Asia and Europe.

On Tuesday, LME copper inventory increased by 8,875 tons to 156,300 tons, mainly due to deliveries from Asian warehouses and a small inflow into New Orleans. Despite the drastic fluctuations in the spread structure, the LME benchmark three-month copper contract was minimally affected, as U.S. President Trump’s push to control Greenland triggered widespread sell-offs in the stock market, causing copper prices to drop by as much as 1.4% that day