Copper Breaks Records as Backwardation Builds and Physical Availability Shrinks

Copper’s climb to a fresh record above 11,700 dollars a ton has become a defining signal of how aggressively the global market is tightening. Futures on the London Metal Exchange rose 1.6 percent to 11,617 dollars a ton after touching 11,705 dollars in Friday’s European session, extending year-to-date gains beyond 32 percent. The move is being shaped by a rare alignment of depleted inventories, redirected trade flows into the United States, and growing confidence that the Federal Reserve will cut rates next week, which typically boosts capital spending and commodity demand.

The underlying story is not a temporary disruption. It reflects a structural deficit that has been building across the supply chain. Traders have accelerated shipments of refined copper into the U.S. as they position ahead of potential import tariffs from the Trump administration next year, creating shortages in Europe and Asia. JP Morgan notes that freely available LME stocks have now dropped below 100,000 tons, a threshold that historically signals significant physical stress and encourages backwardation, with spot prices rising faster than longer-dated contracts. Market behavior is mirroring conditions seen during previous periods of acute scarcity rather than a routine cyclical rally.

Mine output problems deepen the imbalance. Unplanned disruptions in Indonesia, Chile and Congo have removed meaningful tonnage from the system at a time when demand from electric vehicles, power-grid upgrades and AI-related data-center construction is accelerating. With inventories already stretched thin, even modest supply interruptions have an outsized effect on pricing. Expectations of a Fed rate cut reinforce the trend by lowering financing costs and improving the economic outlook for energy and infrastructure investment, both heavy consumers of refined copper.

The immediate market reaction confirms this tightening. Spot and nearby contracts remain well supported as physical availability shrinks, while the forward curve continues to steepen. Citi expects copper to average 13,000 dollars a ton in the second quarter of next year, a projection built on the idea that rising U.S. inventories will leave persistent deficits elsewhere and that mine-supply growth will not catch up with demand tied to electrification and artificial-intelligence infrastructure. Currency markets have reacted with restraint rather than enthusiasm, suggesting investors understand that the rally is driven by scarcity rather than broad-based risk appetite.

Looking ahead, investors will concentrate on three catalysts. The Federal Reserve’s policy decision will shape the demand outlook and financing environment. LME warehouse data will determine how quickly inventories are being depleted. Updates on mine operations will signal whether supply can stabilise or whether further reductions will compound the deficit. The base case remains one of continued firmness in prices through next year, while the main downside risk is a recovery in mine output or a shift in tariff expectations that reduces the incentive to stockpile in the United States.

The broader takeaway for investors is that copper is transitioning into a structurally constrained market where small changes in supply availability carry disproportionate price impact. Positioning decisions should therefore focus on inventory dynamics and trade-flow shifts rather than short-term macro sentiment, since these physical stresses are now the key drivers of price formation.