Copper inventories surge 50%, easing LME squeeze

London Metal Exchange copper inventories have surged by more than 50% in just three days, easing concerns about a severe supply shortage and significantly narrowing a crucial market spread. On-warrant copper stocks increased by 63,000 tonnes between August 17 and August 19, with rises occurring in Asia, the US, and Europe, according to Benchmark Mineral Intelligence.

Total LME stocks rose by 28,000 tonnes as metal flowed onto the exchange and a considerable amount of canceled inventory was reapplied. Benckmark copper analyst Albert Mackenzie stated, "The deliveries alleviate the fears of extreme nearby tightness for now, and LME inventories will be closely monitored for signals on price movements."

The influx of copper demonstrates how swiftly high prices for available metal can draw it back onto the exchange, highlighting the unusual trading conditions caused by US tariff uncertainty. This uncertainty has led to large volumes of copper entering the country, making supplies elsewhere appear more constrained. Backwardation has set in, with copper for immediate delivery commanding a premium compared to later-dated contracts.

On-warrant stocks dropped by around 100,000 tonnes in July, following a decline of 75,000 tonnes in June. The LME cash-to-three-month backwardation expanded to nearly $550 per tonne, its highest level in over five years. More than $400 of that premium was concentrated between August and September contracts.

The surge in available inventory rapidly eased the supply squeeze, with the cash-to-three-month spread falling to about $176 per tonne by Wednesday, down from $436 per tonne on Monday. Three-month copper traded at $13,885 per tonne on Wednesday, a decrease of nearly $300 per tonne since Monday's close. The inventory swing coincides with ongoing US tariff uncertainty, which is reshaping global copper flows and creating regional imbalances that can amplify perceptions of physical scarcity.

Mackenzie commented, "A lot of the current odd dynamics have come about due to huge amounts of copper heading to the US because of the high arbitrage caused by tariff uncertainty, making the global market feel tighter than it really is." He added, "As long as there is uncertainty on tariffs, situations like this could happen again."

While these recent deliveries have alleviated the immediate pressure, traders are watching warehouse movements for signs that tightness may return. Mackenzie cautioned that persistent tariff uncertainty could continue diverting metal towards the US, leaving the global market vulnerable to further bouts of volatility.