London copper squeeze drives metal higher

LME nows to monitor situation and to maintain "market orderliness"

Copper tracked by London Metal Exchange warehouses that is not already set aside for withdrawal has has seen stockpiles sink by 88% this month, following a jump in orders from European depots.

The squeeze is unlike any in 15 years, and is at a scale not seen since the 1970s. It can be largely attributed to the global supply chain issues in the aftermath of the Covid-19 crisis. 

In what could be a self-fulfilling prophecy, anxiety about a possible breakdown in the supply chain has triggered a swathe of purchases by trading houses and manufacturers wishing to get ahead of the curve, thereby exacerbating supply problems. 

Widest spread since 1974

Referred to as “backwardation", the spread between spot and futures contract has increased to its widest level since 1994. Although now at a premium of $740 a ton, on 18 October, the cash-to-three-month spread closed at $1,103.50 a ton, a record high. This sent copper futures back above $10,000 a ton. 

In a statement to Bloomberg, the LME noted the “recent price activity,” vowing: “We will continue to closely monitor the situation and have further options available to ensure continued market orderliness if these are required".

On-warrant stockpiles at the LME fell once more on 19 October, to 15,225 tons, approaching the 47-year low reached last week. 

Copper spot traded flat by 17:00 BST (UTC +1) at $4.678 per troy ounce, having started the month at $4.067 oz.

Copper Spot
Daily change
4.2705
Low: 4.2505
High: 4.325

Further reading: Brent dips after breaking $85

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