Copper is experiencing an historic squeeze as traders react to rapidly falling inventories, potential US tariffs, and a pricing crisis at smelters. In a bid to cover short positions on the London Metal Exchange some Chinese smelters are rapidly ramping up exports. At least 30,000 tons of copper from smelters including Jiangxi Copper and Tongling Nonferrous Metals Group are poised to be delivered to LME warehouses in Asia in the coming weeks, anonymous sources told Bloomberg on Wednesday. Copper smelters hedge the cost of concentrates to protect against significant price swings but the substantial backwardation could lead to losses if physical metal is not delivered in time.Spot copper traded at around $400 per tonne premium to three-month futures this week, the highest level since a record surge in 2021, pushing the market into one of the steepest backwardations in history.Backwardation occurs when the price on the spot market higher than that of a longer-term contract, an indication of tightening supply.Ready to ship inventories on the LME have declined about 80% this year to less than a day of global usage. The depletion has been fueled by a global race to move copper to the US ahead of potential import levies. Warehouse stocks in China also fell earlier this year but has not stabilized as demand in the world’s top consumer of the bellwether metal softens. Exports at these levels would bring renewed pressure and could potentially tip the Chinese market into backwardation as well.Tariff speculationIn February, US President Donald Trump directed the US Commerce Department to investigate the need for copper tariffs, with a report due within 270 days.The announcement triggered a surge in US-bound shipments as traders rushed to preempt any trade barriers. Refined copper imports to the US topped 200,000 tonnes in April, the highest in over a decade.After years of breakneck expansion Chinese copper refining suffers from overcapacity leading to competition for feedstock. Copper smelters in China are so desperate to find raw material that they are paying miners for converting their concentrates into refined metal with spot treatment entering negative territory for the first time ever.LME responseThe LME last week implemented measures to curb backwardation driven by individual traders holding large front-month positions. Similar steps were recently used in the aluminum market, where Mercuria Energy Group was required to lend back a major position at a capped rate to prevent sharp near-term price spikes.Column: Copper smelters are facing both market and pricing crisesHowever, trading data suggests the copper squeeze is more systemic. Key short-term spreads this week moved independently of any single large trader, indicating broader market pressure.On the COMEX market, copper for July delivery were trading sideways on Wednesday, at $4.88 per pound ($10,760 per tonne). September contracts were slightly higher at $4.93 a pound and December contracts were exchanging hands for just under $5.00 per pound.(With files from Reuters and Bloomberg)
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