LME introduces emergency measures as copper squeeze hits five-year high

Copper prices surged to record highs this week as shrinking inventories on the London Metal Exchange and mounting supply disruptions pushed the physical market into its tightest conditions in years. On August 12, Comex copper hit $6.7140 a pound — approximately $14,800 per tonne — surpassing the previous record set days earlier.tradingeconomics

The rally has been accompanied by a sharp widening of the LME's backwardation structure, with the September-delivery contract jumping to a premium of more than $260 over October futures on Friday, the widest one-month spread since a historic squeeze in 2021. In response, the LME introduced emergency measures to contain the runaway rally in spot prices, including a new rule limiting backwardation in tomorrow-next copper contracts to no higher than 0.50% of the prior day's cash price.aegis-hedging+1

Inventories Drain as Supply Disruptions Mount

LME warehouse stocks have fallen sharply, standing at 214,550 tonnes — down roughly 14% since the end of July and more than 46% below their early May level of about 401,000 tonnes. Reuters reported that 58% of remaining inventory is tied up in cancelled warrants awaiting removal.carboncredits

Supply headwinds are multiplying across major producing regions. Chile, the world's largest copper producer, has cut its production outlook for a second straight quarter, with state-owned Codelco expecting 2026 output between 1.331 million and 1.357 million tonnes amid aging operations and high debt. In Indonesia, the Gresik smelter — which processes ore from Freeport-McMoRan's ↘ 3.45% Grasberg mine — has been offline since a boiler leak reported on August 8. The Democratic Republic of Congo has also banned exports of copper and cobalt concentrates, further tightening an already stressed concentrate market.carboncredits

Structural Demand Outpaces New Supply

The International Copper Study Group expects global mine production to grow just 1.6% in 2026, down from an earlier forecast of 2.3%. Meanwhile, demand from electrification — including power grids, electric vehicles, renewable energy, and AI data centers — continues to accelerate. The International Energy Agency estimates the copper market could face a 30% supply deficit by 2035 under the current project pipeline.carboncredits

CNBC reported that the rally reflects tight supply and disruptions more than a broad acceleration in global growth. The softer U.S. July Consumer Price Index reading — showing inflation at 3.4% year over year, down from 3.5% in June — eased fears of further Federal Reserve rate hikes, providing additional support to commodities.cnbc+1

Market Watches for Further Tightening

New copper projects take an average of 17 years from discovery to production, and ore grades have dropped roughly 40% since 1991. With inventories continuing to drain and emergency exchange measures now in play, the copper market faces a question familiar from 2021: whether administrative curbs can hold back a squeeze driven by physical scarcity.carboncredits