Bulls "squeezed" the market, and the "spot price difference" of Lun Copper soared to US$100! The spot copper demanded by the three major bulls exceeds the total LME inventory

# Source: Wall Street CN

# By: Bao Yilong

The LME copper contract expiring on Wednesday once traded at a $100 premium over the contract expiring the following day, hitting the highest level since 2021 and marking a rare extreme volatility not seen since 1998. As the January contract nears expiration, three entities hold over 30% of the long positions and could demand delivery of more than 130,000 tonnes of copper, exceeding the LME's immediately available inventories.

The London Metal Exchange (LME) copper market is once again showing signs of tight near-term physical supply.

On Tuesday, the LME copper Tom/Next spread surged to as high as $100 per tonne, reaching the peak level since the historic supply squeeze in 2021. The spread had remained in contango in the previous trading day, and this sharp intraday reversal ranks among the rare extreme fluctuations since 1998.

The Tom/Next spread reflects the price difference between copper for delivery tomorrow and that for the next trading session, serving as a core indicator for measuring short-term physical supply and demand in the LME market. Under normal circumstances, this spread usually only reflects limited capital and warehousing costs with a narrow range of fluctuations.

Analysts believe that for market participants, the soaring spread directly raises the cost for short sellers to roll over their positions before contract expiration, while reinforcing the signal that near-term physical delivery capacity has become a dominant variable.

Earlier this month, LME copper prices climbed to a record high, and the market's sensitivity to supply constraints has continued to rise. The latest spread movement has added new destabilizing factors to an already tight market structure.

(LME copper price surged to a new high of $13,407 on January 14)

## Looming Contract Expiration and Concentrated Long Positions Amplify Near-Term Physical Supply Tightness

The LME copper contract expiring on Wednesday once traded at a $100 premium over the next-day contract. This phenomenon, known as "backwardation", usually signals a rise in spot demand.

After hitting an intraday high, the spread pulled back and closed at $20 per tonne by midday London time, but the overall volatility remained abnormal.

This spread dislocation occurred as the LME January copper contract nears its expiration date. According to LME data, as of last Friday, three entities collectively hold at least 30% of the open interest in long positions.

If these positions are held until expiration, they could demand delivery of more than 130,000 tonnes of copper— a volume that exceeds the immediately available inventories in the LME warehousing system.

Under this market structure, the scarcity of short-term deliverable resources is rapidly magnified. The Tom/Next spread has become a focal point of the bull-bear game, also significantly raising market concerns over delivery risks.

## Rising Rollover Costs for Shorts; Cross-Market and Inventory Structures Fuel Volatility

As the Tom/Next spread climbs, short sellers face significantly higher cost pressures if they choose to roll over their positions.

Although the LME has rules requiring large long holders with specific position ratios to lend physical copper to the market at a capped level to ease short-term imbalances, the spread in this round once broke through the previous institutional cap of around $65 per tonne, indicating that the buffer space was quickly exhausted in a short period.

At the same time, the forward structure of copper prices is also sending tight signals. The LME curve remains inverted across multiple deferred contracts, and the market's pricing for future supply-demand relations continues to trend tighter.

While the total global copper inventories are currently at an acceptable level, the uneven distribution of inventories and limited deliverable resources in some regions have made short-term spreads more sensitive to delivery pressures.

With the strengthening of LME spot prices, the previous premium of COMEX copper contracts in New York has narrowed significantly, and even turned into contango recently. Changes in cross-market spreads are adjusting the direction of physical copper flows.

This week, small-scale arrivals were recorded at LME warehouses in New Orleans, with physical copper flowing back into previously vacant delivery points.

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