LME copper spreads surge to premium on short covering

Short-covering on the London Metal Exchange (LME) ahead of the expiry of contracts next week amid expectations that US tariffs will be imposed on copper triggered a sharp move in a key spread on Friday.

Worries that US President Donald Trump may impose tariffs on copper had spurred traders and investors to buy copper on the US COMEX exchange and sell on the LME.

Short or bearish positions on the LME are being cut or rolled over ahead of settlement on Wednesday, turning discounts for nearby copper contracts against those further along the maturity into premiums or backwardations.

The spread between the cash LME copper contract and benchmark three-month futures spiked to a premium for the first time in 19 months on Friday.

It rocketed to $249 a metric ton, the highest since November 2021, compared to a discount, or contango, of $119 two days ago.

A backwardation indicates shortages or worries about supplies in the LME warehouse system.

The spike in the spread was led by short-covering ahead of pricing cash for 3rd Wednesday on Monday, said Alastair Munro, senior base metals strategist EMEA, at broker Marex.

“But the whole term structure is shifting,” he said, adding that China has destocked into its lunar new year holidays.

Nervousness around various US tariff plans and the potential for an easing of Russian sanctions were also playing a part, Munro added.

Copper prices on COMEX have surged as investors seek to price in potential tariffs, with the premium of COMEX over LME at $1,050 a ton on Friday, down from a record peak of $1,153 a day earlier.

“People are pulling metal out of the LME system to ship it to the US,” said Dan Smith, head of research at Amalgamated Metal Trading.

Copper inventories in warehouses certified by COMEX have more than doubled over the past five months to 100,347 metric tons.

(By Eric Onstad, Polina Devitt and Pratima Desai; Editing by David Evans)