In-depth Discussion on the Beginning and End of the Expansion of LME Structure [SMM Analysis]

》View SMM copper quotes, data, and market analysis

》Subscribe to view historical spot prices of SMM metals

》Click to view the SMM copper industry chain database

On Friday evening last week, the price spread between the LME_CA_CASH contract and the July date contract suddenly surged to over $250/mt. By the date of publication, the price spread between LME copper CASH and the July date contract had approached backwardation of $275/mt. This fluctuation sparked various discussions in the US dollar copper market. Combined with similar situations that had previously occurred in LME aluminum, various speculations arose. This article attempts to sort out the recent abnormal structure of LME copper based on some recent market anomalies.
Since the LME shifted to a backwardation structure in 2025, the following situations have existed in the market: before the expiration of the current month's date contract, the backwardation structure between the current month's date and the next month's date expands. After delivery, the Cash contract reverts to a contango structure against the next month's date. The reason lies in the fact that although the LME structure had shifted to backwardation, the absolute inventory remained relatively high. Additionally, there was Russian copper in Rotterdam warehouses (this type of inventory was considered non-movable), which meant that although some financial positions held a tight supply expectation for the future, there was no tight demand in the spot market. This structure provided certain arbitrage opportunities in the market. Taking May as an example, the specific method was: conducting May-June lending before the expiration of the May date contract, converting the May date position into Cash or TOM positions through TOM-NEXT after delivery, and then reversing the direction to establish a Cash-June borrow.

The breakdown of this habitual arbitrage environment can be attributed to the following two reasons: 1. LME inventory has continued to decline, reaching around 95,000 mt by the date of publication. In particular, the Rotterdam warehouse has experienced significant destocking, with current inventory now below the safety line and a large proportion of cancelled warrants, resulting in extremely low deliverable inventory. 2. The LME-SHFE price spread has continued to weaken to the export threshold. Domestic smelters have actively exported to repair the SHFE/LME price ratio. Given the already high procurement costs of imported copper concentrates, it is easy for them to end up with a net short position. Therefore, there are sufficient conditions for a significant expansion of the backwardation between Cash-TOM and TOM-NEXT.

In summary, the recent structural anomaly in the LME seems unexpected but is actually a deliberate strategy. The deterioration of copper concentrate treatment charges (TCs) has increased expectations of tight supply in the future. After the LME structure shifted to backwardation, industrial hedging positions (especially those of smelters) have moved forward significantly. The deterioration of the SHFE/LME price ratio underpinned by copper prices will further exacerbate the procurement costs of copper concentrate raw materials, making it a priority to export a large amount of copper cathode to repair the price ratio. As a result, industrial bears have concentrated in the near-month contracts, and a sharp increase in the structure is inevitable after inventory falls below the safety line.