(Aug 17): Copper advanced toward a record, with a key spread in London widening to extreme levels in a sign of competition for prompt supply.

The metal’s spot price traded as much as US$543.50 a tonne above contracts for delivery in three months on the London Metal Exchange, the biggest gap since a major squeeze in 2021 that rocked the market. The backwardation structure is a hallmark of near-term demand outstripping availability.

Copper is up almost 16% this year, as a massive flow of metal into the US — in anticipation of a tariff decision from the Trump administration — leaves markets elsewhere with less supply. At the same time, investors have warmed to the longer-term themes of robust demand powered by the energy transition, as well as the mounting industry challenge of finding and funding new pits.

“There seems to be momentum for it to get there,” said David Wilson, head of metals strategy at BNP Paribas SA, flagging the potential for London copper to top its January record. “It’s moving into overbought territory but I don’t know if that means anything at the moment, given how tight it is.”

Three-month futures advanced as much as 1.7% to US$14,396 a tonne on the LME, building on seven weekly gains. The surge has put prices within reach of the US$14,527.50 peak.

LME-tracked inventories have shrunk to just above 200,000 tonnes, the smallest volume since February. The ballooning backwardation can indicate a market squeeze, where holders of short positions — or bets on losses — have to buy back contracts at escalating prices or scramble to secure physical metal for delivery.

Crucially, the moves come shortly ahead of the third Wednesday of the month delivery date, the main focus of liquidity in the LME’s contracts. That may pile pressure onto traders with short positions.

A quirk of the current situation is that total global inventories are not particularly low, just that they are concentrated in the US. That puts them outside the LME network, as traders bet on US President Donald Trump slapping tariffs on the refined metal. In addition, demand in China is not seen as particularly strong.

The White House has kept the market guessing on plans for levies on refined copper, with no announcement emerging about seven weeks after a deadline for the Commerce Department to make a recommendation. Meanwhile, flows to the US have continued as markets price in a potential tariff.

With the cash-to-three-month spread spiking, attention is turning to whether more copper might emerge from China, which often happens during periods of extreme backwardation and short-term supply pinches.

“Normally you’d expect to get more Chinese deliveries into the LME,” BNP’s Wilson said. “But the thing is, why would you deliver to the LME when you can still effectively ship metal into the US?”

Copper’s move was the strongest in an upbeat start to the week for the six main metals on the LME, with futures trading 1.2% higher at US$14,334 a tonne at 3.06pm in Singapore (same time as Malaysia). Aluminium rose 0.1% while zinc was up 0.3%, with advances also driven by a weaker US dollar, which aids commodities priced in the currency.

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