Copper’s $110 Squeeze Is a Delivery Mirage—and the White House Holds the Fuse
LME readily available copper inventory jumped more than 20,000 tonnes on August 18—the biggest single-day replenishment since April—even as the cost of rolling copper one day briefly hit $110 per tonne, the widest tom/next spread since October 2021. Outright copper then fell roughly 2% to around $6.48/lb, while cash copper held approximately $480/t above the three-month contract.
That divergence—record-tight delivery spreads alongside falling prices and rising stocks—describes a shortage that is jurisdictional, calendar-specific, and beginning to self-correct.
The Plumbing Stress
Tomorrow's LME third-Wednesday settlement concentrates physical delivery into a single session. Shorts without deliverable warrants face $110/t daily rolls—roughly $2,750 per 25-tonne contract burned overnight. Cash copper touched ~$545/t over three-month on August 17. Bloomberg-derived commentary attributes the tom/next eruption to short-position stress ahead of expiry; ING identifies U.S.-bound cargo flows and Chinese buying as the primary causes of LME drawdowns, rather than mine failures.
Mining equities confirm: Freeport-McMoRan fell 3.55% to $65.95 and Southern Copper dropped 3.02% to $186.24 during a session when prompt LME copper flirted with $14,500/t. Equity investors are pricing the squeeze as transient.
Metal in the Wrong Country
Global copper has migrated to America at a scale that renders LME drawdowns misleading. COMEX exchange stocks reached ~737,353 short tons (~669,000 metric tonnes) by August 17. U.S. refined imports exceeded 200,000 tonnes in July—the largest monthly volume in at least twelve years. Some estimates place total U.S. holdings around one million tonnes. LME stocks, meanwhile, roughly halved from above 400,000 tonnes to ~205,000 tonnes.
The migration follows tariff arithmetic. Washington's 50% levy on semi-finished copper (August 2025) excluded refined cathode. Commerce recommended a possible 15% refined duty from January 2027, escalating to 30% in 2028, pending a presidential decision. No implementing announcement has emerged. Société Générale estimates the COMEX–LME arb implies roughly 14.6% probability of the 2027 tariff and ~37% for 2028—a dramatic departure from the historical ~$33/t logistics-adjusted premium.
Merchants are financing a private strategic copper reserve inside the United States, compensated by tariff-option premium. COMEX's ~669,000 tonnes of exchange copper alone dwarf the International Copper Study Group's projected 96,000-tonne global refined surplus for 2026 by nearly sevenfold. Shanghai inventories, meanwhile, have risen toward ~80,000 tonnes as $14,000+ pricing suppresses Chinese fabricator purchasing and encourages scrap substitution—demand destruction that is already visible.
The Backwardation Funds Its Own Cure
Today's stock increase is commercially more revealing than another demand forecast. A $480–545/t three-month backwardation represents roughly 13–16% annualized gross return for a merchant who sells expensive prompt copper and repurchases deferred delivery at a discount. Bloomberg notes this incentive explicitly. The metal appeared on warrant today because the arithmetic demanded it.
If another 30,000–50,000 tonnes surface over the coming week and backwardation compresses below ~$150/t, the squeeze was primarily expiry-driven. If stocks resume falling after August 19 and backwardation stays above $300, the physical constraint runs deeper.
Real supply disruptions exist—Indonesia's Gresik smelter (~342,000t/year) offline since August 8, a DRC concentrate export ban—but ICSG still projects a global surplus, and these outages amplify a squeeze they did not originate.
The White House Holds the Detonator
Every dollar of today's COMEX–LME dislocation encodes a wager on a tariff decision Washington has neither confirmed nor denied. Traders already know the consequence of a wrong bet. In 2025, merchants rushed cathode stateside expecting the 50% tariff to cover refined metal. The administration exempted it. COMEX copper crashed roughly 20% intraday.
That reversal mechanism sits loaded today at larger scale. Should Washington decline or delay refined duties, the COMEX premium collapses, the warehousing logic for U.S. cathode evaporates, merchants redirect cargoes toward Europe and Asia, LME warrants rebuild, and backwardation deflates—potentially within weeks. SocGen's own probability estimates confirm the market assigns well under 50% odds to the tariff materializing on schedule.
The world has enough copper. The LME has enough deliverable copper in the right jurisdiction, on the right date, under the right warrant. Those are two distinct statements about the same metal—and the hundreds of dollars per tonne separating them will be made or lost on a single policy announcement that nobody in the market can yet calendar.
not investment advice