London copper premiums surge to five-year highs amid warehouse stock squeeze

Tensions within the London copper market escalated on Friday as spot contracts achieved their highest premium over deferred futures in five years, driven by a critical depletion of metal held in exchange warehouses. The August contract on the London Metal Exchange traded at a premium of up to $370 per tonne above September futures, marking the widest one-month spread since the 2021 market disruption that necessitated emergency intervention by the exchange. Concurrently, the cash-to-three-month spread reached $434 per tonne, also a five-year high, while spot copper prices hovered near record levels of approximately $14,500 per tonne.

The benchmark three-month contract remained above $14,100, reflecting a nearly 14 per cent increase in value during 2026 after establishing an all-time peak exceeding $14,500 in January. In New York, Comex copper for September delivery showed little movement at $6.59 per pound, equivalent to roughly $14,500 per tonne. This price point sits approximately $400 above the LME three-month benchmark and remains close to the record high of $6.7140 set on Wednesday.

Inventory levels at the LME declined for a 42nd consecutive day on Friday, representing the longest uninterrupted period of stock reduction since 2014. Total holdings fell to 204,975 tonnes, with nearly half of the remaining inventory already allocated for withdrawal. As warehouse metal serves as a final supply source for physical trade, holders of short futures positions may be compelled into a bidding war to force inventory holders and those with expiring long positions to sell. Bloomberg reports that some analysts and traders now anticipate new all-time highs above $14,500 per tonne.

The significant drawdown in stocks is attributed to traders shipping metal to the United States in anticipation of potential tariffs on refined copper, as well as to China. Chinese smelters are reducing output due to tight feedstock supplies following a ban on concentrate exports from the Democratic Republic of Congo. Andy Home, writing for Reuters, noted that the market’s reaction to the Congo ban, which affects less than one-fifth of the country’s copper output, highlights the metal’s acute sensitivity to supply disruptions rather than the scale of the ban itself. He warned that if LME stocks continue to drain both east and west, further volatility is likely.

BMI, having raised its 2026 forecast last month, now projects the full-year average price to approach $13,500 per tonne, up from a previous estimate of $12,700, citing strong upside risks. The research house identified Washington’s tariff decision as the most immediate directional catalyst. A phased tariff implementation of 15 per cent from 2027 and 30 per cent from 2028 would provide further support in the second half of the year. Conversely, a reversal of tariffs could pressure prices given record CME stocks exceeding 700,000 short tons. However, BMI stated that either outcome leaves copper’s longer-term supportive fundamentals largely intact.

Supply challenges persist in Chile, the world’s top producer, where efforts to return to an annual output of six million tonnes are facing significant hurdles. Antofagasta reduced its production guidance by approximately five per cent despite a 72 per cent jump in first-half profits, still accounting for costs associated with July storms that halted operations at Los Pelambres. Codelco announced that the stalled Andes Norte project at El Teniente will not reach production until 2029. National output has stagnated around 5.5 million tonnes, hindered by falling ore grades, weak exploration, and a permitting process that averages 147 approvals per project and can take more than a decade. The Chilean government has established a public-private group to accelerate permits and finance junior miners, with Economy and Mining Minister Daniel Mas aiming to cut approval times by up to 70 per cent and lower corporate tax to 23 per cent.

In Indonesia, PT Smelting’s Gresik plant, which is 66 per cent owned by Freeport Indonesia, has been closed since 8 August due to furnace damage. The facility produces approximately 342,000 tonnes of cathode annually. Freeport expects repairs to be completed this quarter and has accelerated the restart of its new Manyar smelter to late August.

Copper equities have cooled alongside the metal price but remain higher for the month. As of Friday morning in New York, Ivanhoe Mines had risen 15 per cent in August, First Quantum 12 per cent, Freeport-McMoRan 6.5 per cent, and Teck nearly six per cent, compared to a 2.3 per cent gain for the metal. Antofagasta shares slipped three per cent following its guidance cut. These developments occur as Chief Executive Jorge Gomez reviews company operations amid scrutiny over irregularities detected in production figures.