According to a report by the news agency Bloomberg, the strongest copper squeeze of all time is currently developing on the London Metal Exchange (LME) – the world’s largest futures exchange for standardized forward contracts, futures contracts, and options on base metals. The rapidly declining inventory levels are said to be driving up the spot price.
For example, on Monday, copper was traded on the spot market at a premium of $280 per tonne to the three-month future. This is the highest value since a record increase in 2021. According to experts, this phenomenon, also known as backwardation, indicates a supply shortage and follows sharply declining stocks in LME warehouses over the past few months.
These inventories serve as a reserve for the manufacturing industry during times of high demand. At the same time, speculators betting on falling copper prices – i.e., taking a short position – can use them to unwind their contracts. When the phenomenon of backwardation occurs, it usually means that the stocks in the warehouses are no longer sufficient to cover these needs.
Copper in LME Warehouses Increasingly Scarce
According to Bloomberg, readily available copper stocks at the LME have fallen by about 80% this year and now account for less than a full day of global demand! This was partly due to a global competition to transfer copper to the USA before the US raises its tariffs. The rest of the world was thus faced with an increasing shortage of the most important industrial metal of all.
At least, demand for the red metal has recently declined somewhat, and some Chinese smelters have also released surplus copper into the global market to help replenish stocks. However, Chinese warehouses were also partially emptied to ship the metal to the United States.
The LME itself introduced measures last week to prevent individual large traders from triggering a backwardation. Similar steps had already been taken in the aluminum market, where the development was similar.
Is a Profound Copper Squeeze Emerging?
According to experts at Bloomberg, however, it is believed that based on LME trading data, a more profound squeeze is emerging in the copper market. These data had indicated on Monday that individual traders were not responsible. There are also rules that force traders to lend their stocks to the market in the short term if they hold positions equivalent to more than 50% of available inventory.
However, none of this was visible yesterday, according to the news agency. On the contrary, broadly diversified purchases had paved the way for an even higher backwardation. And this development is not limited to copper contracts with short maturities, but also applies to contracts with maturities until the end of June 2026, it was further stated. This is a big difference from the situation six months ago, when contracts with shorter maturities were traded at a discount. This indicated at the time that there was sufficient supply, at least in the short term.
As a result, the copper price is currently approaching the $5.00 per ounce mark again, which it last significantly exceeded in March of this year. Apart from the long-term situation – we believe that copper will be in significantly higher demand by the end of the decade and beyond as part of the energy transition and due to the increasing energy consumption of AI applications – there are also opportunities for higher copper prices in the short term.
Good Prospects also for Copper Explorers
Good prospects, among others, for the copper stocks represented on Goldinvest.de such as the Australian American West Metals (WKN A3DE4Y), the already small-scale producing Altiplano Metals (WKN A2JNFG) but also Axo Copper (TSXV AXO / WKN A2JNFG), the first real (copper) IPO of this year!
Axo Copper is developing the La Huerta copper project in Mexico. Since 2019, the previous Mexican owner has successfully operated small-scale mining on the project in an open-pit to a depth of 50 meters, working along the high-grade copper vein. At the time, they were able to save on extensive exploration as the highly mineralized magmatic fissure extends directly to the surface and can be traced over several kilometers. From Axo’s perspective and that of (future) industrial mining, the family business has essentially produced a comprehensive bulk sample, which, in addition to small yields, has provided valuable information regarding metallurgy and copper content. According to the private company’s records, ore with an average of 4-5% copper was mined and processed.
Axo Copper itself has also repeatedly drilled high copper grades and has just announced that it will use the capital from the IPO for drilling an additional 15,000 meters. We consider this story extremely exciting and advise our readers to read through this detailed article:
