Falling LME copper stocks inflate premium for nearby contracts

Concerns about the nearby supply of copper on the London Metal Exchange (LME) due to falling stocks in LME-registered warehouses has created a premium for nearby contracts against those with longer maturities.

The discounts for nearby LME copper contracts against longer dated forwards flipped into premiums a month ago as higher COMEX prices than on the LME continued to attract metal.

The premium of the cash LME copper contract over benchmark three-month futures was last at $75 per ton after jumping to $93 on Thursday’s close, highest in two and a half years. This compares with a discount of $63 in early April.

“The backwardation indicates that there is some kind of a shortage. Because normally it is in contango,” said Dan Smith, managing director at Commodity Market Analytics.

Total copper stocks in the LME warehouse system have halved since mid-February to 132,400 tons, the lowest in almost a year. Available stocks, those not marked for delivery, at 54,600 tons are the lowest since July, 2023.

The sharp move in the spread on Thursday was caused by fresh cancellations in LME stocks, said Alastair Munro, senior base metals strategist EMEA, at broker Marex.

The premium eased on Friday as there were no major new cancellations of warrants, title documents that confer ownership, in Friday’s data, he said, even though stocks kept on leaving the LME-registered warehouses.

Fuelling worries are recent mine supply disruptions and traders diverting copper metal to the US while Washington investigates the potential for import tariffs on copper.

Even though there is no dominant holder of the LME copper warrants ahead of the expiry of contracts on the third Wednesday of the month – something which could concern the market, as of June 4 one party held more than 90% of copper cash contracts, helping to keep the premium elevated.

(By Polina Devitt; Editing by David Evans)