A major squeeze is taking shape in the copper market, with buyers on the London Metal Exchange (LME) paying increasingly large premiums to secure immediate supply.
Spot copper has surged above September contracts, pushing the one-month spread to more than US$300 ($423) per tonne, its widest since the historic copper squeeze of October 2021.
The three-month spread has also climbed above US$400 per tonne, another level not seen since 2021.
Like the previous squeeze, the latest move is being driven by rapidly declining LME copper inventories.
Exchange data shows stockpiles across the LME’s global warehouse network have fallen for 42 consecutive trading days, the longest run of declines since 2014.
Copper bidding war
Copper has been on a strong run for more than a year, supported by Chinese demand and a series of global supply disruptions.
The LME benchmark three-month contract is now trading above $14,100 a tonne, up nearly 14% this year and around US$400 below its January record.
LME warehouses are an important source of last-resort supply for the physical copper market, while metal held in the system can also be used to settle expiring futures contracts.
As those inventories shrink, traders holding short futures positions can be forced to compete for increasingly scarce available metal.
Around 205,000 tonnes of copper remain in the LME warehouse system. However, according to Bloomberg, nearly half has already been earmarked for withdrawal, leaving significantly less available to other buyers.
The decline comes as traders and producers have increased shipments to the US and China, where copper has been commanding even higher prices than on the LME.
US tariffs pull in copper
In the US, Comex copper recently surged to a record as traders bet that the Trump administration could eventually impose tariffs on refined copper.
The US already applies a 50% tariff to imports of certain semi-finished copper products and copper-intensive derivative products.
The Commerce Department has also recommended a phased universal tariff on refined copper, starting at 15% in 2027 and increasing to 30% in 2028.
The prospect has revived arbitrage opportunities, where traders buy copper in lower-priced markets such as London and ship it to the higher-priced US market ahead of potential tariffs.
Société Générale analysts estimate the current Comex premium implies a 14.6% probability of the proposed 15% tariff being introduced by January 2027.
“The Comex-LME spread has increasingly become a gauge of US tariff expectations, with a wider premium signaling greater perceived tariff risk and continuing to pull metal into the US,” ING commodities analyst Ewa Manthey told CNBC.
The US imported more than 200,000 tonnes of copper in July, its highest monthly volume in 12 years, according to customs data cited by CNBC.
Supply deficit looms
Behind the scramble for physical copper is a bigger question over whether enough new supply can be developed to meet rising global consumption.
Copper is increasingly viewed as strategically important because of its widespread use across electricity grids, data centres, defence systems, military equipment, and other critical infrastructure.
At the same time, major producing countries such as Chile have struggled to maintain production growth.
Fitch Solutions’ BMI unit expects the global copper market to move into deficit from 2027, with the shortfall widening each year through 2035.
The International Energy Agency (IEA) has also warned of a structural supply gap, estimating that primary copper supply could fall 25% short of requirements by 2035 under current policy settings.
Bringing new mines into production will therefore be critical. The IEA says production at many of today’s major copper mines has either peaked or is expected to do so due to declining ore grades and reserve depletion.
That is putting greater focus on developing copper resources outside the industry’s traditional producing regions.
Canada’s copper opportunity
Canada is one jurisdiction with the potential to play a larger role, given its mineral resources, established mining industry, and stable regulatory framework.
The country currently holds around 1% of global copper reserves and accounts for roughly 2% of global production, according to Natural Resources Canada.
Dennis da Silva, a senior portfolio manager at Middlefield, told CBC News last year that Canada could potentially increase its share of global production to between 7% and 8% over the next two decades.
Governments are also looking to accelerate development. At the federal level, the Major Projects Office was established last year to help advance major resource and infrastructure projects.
Several early-stage explorers are looking to add to Canada’s future supply pipeline.
In Ontario’s historic Sudbury mining district, Canuc Resources (TSX-V:CDA) is exploring its East Sudbury Project for iron oxide copper-gold (IOCG) mineralisation.
In Quebec, Power Metallic Mines (TSX-V:PNPN) is advancing a high-grade polymetallic system containing nickel, copper, and precious metals, which the company has compared geologically with large systems such as Norilsk in Russia.
Further west, Fathom Nickel (CSE:FNI) is exploring for nickel-copper-cobalt and platinum group element mineralisation in Saskatchewan.
Critical minerals-focused juniors Purecore Metals (CSE:PURE) and St-Georges Eco-Mining (CSE:SX) also include copper exposure within their broader portfolios.
With exchange inventories falling, copper being pulled towards the US and China, and longer-term supply deficits looming, the current LME squeeze is highlighting a challenge that extends well beyond today’s available stockpiles: the need to bring significantly more copper supply online.
Write to Jackson Chen at Mining.com.au
Image: CME Group
