Copper Warehouse Stocks Drop to Critical Level in Global Squeeze – Yahoo Finance

(Bloomberg) — Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton.

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Copper tracked by LME warehouses that’s not already earmarked for withdrawal has plunged 89% this month after a surge in orders for metal from warehouses in Europe. Stockpiles have also been falling fast on rival bourses and in private storage, and LME spreads have entered historic levels of backwardation, with near-term contracts trading at huge premiums.

Copper rose as much as 1.2% on the LME, to $10,108 a ton. The metal is on course for a weekly gain of 7.8%, which would be the biggest since 2016.

The slumping global stockpiles and resilient demand for copper stand in stark contrast to mounting worries over the macroeconomic outlook, and the risk that stagflation and power shortages could derail the world’s strong growth trajectory. Chinese inventories also dropped Friday, with Shanghai Futures Exchange stockpiles declining to 41,668 tons, the lowest level since 2009.

Earlier Friday, LME copper contracts expiring in one business day’s time traded at a $175 premium to those maturing a day later, blowing past previous peaks seen during other short-term supply squeezes over recent years. That’s the biggest backwardation in data going back to 1998. The premium was just $1 at the close on Monday.

One reason that the tom/next spread rarely trades in such large backwardations is that the LME forces anyone with a dominant holding in inventories and spot contracts to lend them back out to buyers at pre-determined rates, based on the size of their positions.

While that’s placed a cap on the spread during previous short-term LME supply squeezes, the latest data from the bourse shows that no one company was subject to those lending rules as of Tuesday. Instead, three separate entities held positions equaling as much as 120% of on-warrant stocks — and anyone who wanted to borrow or buy from those companies would have been competing freely against other bidders at a time when supply anxiety is rising fast.

The last time that type of dynamic developed was during a historic squeeze in 2006, when a buying spree early on in China’s industrial boom drained LME on-warrant inventories to a near-record low. On Friday, freely available stocks fell to even more critical levels, with just 14,150 tons available in an industry that consumes about 25 million tons annually.

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