Three separate entities holding long positions equal to at least 30 percent of LME's outstanding Jan. copper contracts drove the market into a sharp squeeze Wednesday. LME data showed those combined positions entitled their holders to more than 130,000 tons of copper at expiry — more than the total amount readily available in the exchange's warehousing network.
The Tom/next spread — the cost of rolling a position from delivery tomorrow to the next day, and a closely watched gauge of immediate physical demand in LME's warehouse system — briefly hit $100 a ton Wednesday. That is the highest level since a major supply squeeze in 2021 that forced the LME to introduce emergency rule changes to stabilize the market. Pricing records for this spread go back to 1998.
The mechanics of the squeeze are straightforward. Holders of short positions — traders who sold futures they must now settle — faced a binary choice at expiry: deliver physical copper or roll their positions forward. Rolling forward while the Tom/next spread sat at $100 a ton meant absorbing that premium as a direct loss. The spike exposes short holders to what the LME classifies as substantial settlement risk.
The spread did not hold those extremes. It had earlier risen to $65 a ton, a level equal to 0.5 percent of the prior day's official cash price. That figure corresponds precisely to the LME's cap: exchange rules require large long holders — those controlling between 50 percent and 80 percent of readily available stocks and spot inventory — to lend positions back to the market at no more than that rate. The spread then surged past the cap briefly before falling sharply in the final minutes of trading and closing at $20 a ton at 12:30 p.m. London time.
The Tom/next spread routinely tightens into backwardation — a condition where near-term delivery costs more than deferred — ahead of monthly contract expiries. A move to $100 a ton is a different order of magnitude. The LME's own lending-rate caps exist specifically to prevent single large positions from compressing short sellers to the point of market disruption, making Wednesday's breach of that cap level, even if brief, a structural signal rather than a noise event.
Copper's price curve beyond the immediate spread confirms the market is not treating this as a one-session anomaly. Backwardation extends through most monthly spreads to the end of 2028, according to LME data. That forward curve shape tells physical buyers and traders that the market expects supply to remain tighter than demand for more than two years, not just through the current contract expiry.
The squeeze comes after a rally that lifted LME copper prices above $13,400 a ton earlier this month — a record high. Two forces drove that rally. First, mine output has faltered at a critical moment: several major producing operations have underperformed on volume. Second, a surge in copper shipments to the U.S. drained supplies from warehouses serving other markets, reducing the buffer available to traders needing to make physical delivery on LME contracts.
Short sellers attempting to roll positions are not the only ones feeling pressure. The LME's warehousing network is the physical backbone of its futures contracts — when the metal sitting in those warehouses falls below the outstanding long positions at expiry, the structural condition for exactly this kind of squeeze is set. Friday's LME data showed the combined long positions already exceeded readily available warehouse stocks before Wednesday's expiry.
Analysts and traders widely attribute part of the structural copper deficit to expected demand growth tied to artificial intelligence infrastructure. Data center buildouts require substantial copper for power distribution, cooling systems and cabling. That anticipated demand has drawn speculative and strategic long positioning into the market alongside the physical supply constraints, amplifying the squeeze dynamic.
The 2021 precedent is relevant context for how the LME has handled these situations before. That year's squeeze prompted the exchange to invoke emergency powers — specifically, rules requiring holders of dominant long positions to lend at capped rates — to prevent disorderly pricing. Those rules remain in effect and appear to have partially contained Wednesday's move: the spread's retreat from $100 a ton to a $20 close at 12:30 p.m. London time tracks with the activation of that lending-cap mechanism.
The counterargument to a sustained structural squeeze is that LME rule architecture is designed to prevent dominant long positions from holding the market hostage indefinitely. Mandatory lending at capped rates forces large longs to supply liquidity to short sellers rather than pressing the squeeze to its maximum. Wednesday's closing level of $20 a ton — down from the $100 peak — illustrates that mechanism working in real time.
What it does not resolve is the forward curve. Backwardation running through end-2028 reflects physical market participants pricing in a multi-year supply gap, not a single expiry anomaly. The Tom/next spread flare is the acute symptom; the shape of the two-year forward curve is the chronic condition.
