Copper Backwardation Collapses After 20,000 Tons Hit LME Warehouses

Trafigura Group and several other traders delivered more than 20,000 tons of copper into LME warehouses on Tuesday, the biggest one-day build in on-warrant stock since April, and the squeeze that had gripped the London market for the past week came apart.The cash-to-three-month spread settled at a $248-a-ton backwardation, down from as much as $545 on Monday, which was the widest since 2021. Trafigura was behind a large share of the metal placed on warrant, according to people familiar with the deliveries, and traders expect more to follow in the coming days. A Trafigura spokesperson declined to comment.At $545, selling metal now and buying it back three months out at a discount had finally become worth more than the trade everyone had been running instead, which was shipping cathode to the U.S. and waiting on a tariff ruling that still hasn’t come. David Wilson, head of metals strategy at BNP Paribas, put the question to clients on Monday: “why would you deliver to the LME” when you can still ship into the States?Set OilPrice.com as a preferred source in Google here.Wednesday is the third Wednesday of the month, where the bulk of LME liquidity sits, and shorts had spent days buying cash and selling forward into warehouses with nothing in them. Tom/next, the cost of rolling a position forward a single day, hit $110 before closing at a $79 premium.Even after last week’s recovery, on-warrant stock is down roughly 75% from its mid-April peak. The Commerce Department’s recommendation on refined copper duties was due June 30 and has not been published, leaving a proposed 15% tariff for January 2027, rising to 30% in 2028, unresolved. Copper keeps landing in the U.S. either way: about 56,000 tons in the first two weeks of August, according to shipping data compiled by IHS Markit, roughly the monthly average once July’s record 223,000-ton inflow is stripped out.Societe Generale reads the current Comex premium as implying about a 14.6% chance the duty arrives on schedule. “The COMEX-LME spread has increasingly become a gauge of U.S. tariff expectations,” ING commodities strategist Ewa Manthey told CNBC.But supply isn’t going to close the gap. Chile has cut its production forecast twice this year, Freeport’s Gresik smelter in Indonesia has been offline since Aug. 8, and Congo’s ban on concentrate exports has Chinese smelters cutting runs. None of that gets solved by warrants moving around a warehouse network.Three-month futures settled 1.2% lower at $13,986.50 a ton and the rest of the LME base metals complex fell with them. Copper is up about 13% this year, enough to carry it past half of BHP’s full-year revenue for the first time. Chinese buyers have started backing away at these levels, with Shanghai inventories building toward 80,000 tons over the past several weeks.Wednesday’s expiry should show how much of the past week was shorts covering and how much was the market genuinely short of metal.By Michael Kern for Oilprice.comMore Top Reads From Oilprice.comTrump Dangles Keystone XL Revival as Canada Tariff Deadline LoomsStrait of Hormuz Shipping Slows After Vessel AttackUAE Freezes Trade With Iran After Missiles Fall Near Its Coast