Copper Market "Short Squeeze Storm": The Global Copper Shortage Crisis Behind China's Smelting Plant Export Surge

Recently, the global copper market is experiencing an epic short squeeze. At the center of this storm are the familiar players — Chinese smelters. From the London Metal Exchange (LME) to New York COMEX, from domestic processing fees "breaking zero" to global price structural distortions, the copper market is writing an unprecedented story of extreme volatility.

I. Spot Premium Soars to Historical Highs, Copper Buyers "Forced to Squeeze"

On a day in June 2025, a chilling scene appeared in the LME market for copper traders: the spot copper contract was priced at a premium of up to $280/ton over the three-month futures, the highest level since 2021, second only to that historical squeeze event (which once soared above $1,000).

As shown in the figure below ↓

Figure 1: Historical Trend of LME Spot Copper and Three-Month Futures Price Spread (1995–2025)

This chart reveals the evolution of the frequency and intensity of short squeezes in the copper market. It can be seen that in the past two years, both the frequency and intensity of "spot premiums" have risen, indicating that supply tightness has become the norm.

II. Chinese Smelters "Forced to Export," Igniting Global Arbitrage Chain

According to reports from Bloomberg and Reuters:

• At least 30,000 tons of copper from Jiangxi Copper and TNMG will be exported to Asian LME warehouses;
• Nearly 10 Chinese smelters are preparing to deliver 40,000–50,000 tons of copper;
• In May, 43% of LME inventory came from China, nearly halving from 59,725 tons in April.

The driving force is evident: Chinese smelters are "passively participating in arbitrage."

Figure 2: Growth Trend of China's Copper Ore Imports and Production (2004–2025)

As seen in the chart, China's copper ore imports have increased by over 1,000%, while domestic production has grown by about 700%. This means that smelting capacity has far exceeded resource security capabilities, and the raw material shortage issue is becoming increasingly prominent.

III. Processing Fees Drop Below Zero, Smelters "Paying" Mines to Secure Supply

Currently, the situation for Chinese smelters can be described as "unprecedented":

• Spot processing fees (Spot TC/RC) have fallen into negative territory for the first time, meaning smelters are willing to "pay" mining companies to secure concentrates.

This is an industry alarm, indicating that the supply of copper concentrates is extremely tight, and the internal competition among smelters has severely impacted the industry ecosystem

4. LME Spot Premium Spreads Globally, Potentially Triggering Structural Risks

Recently, LME has also taken urgent measures to curb price fluctuations:

• Restricting large traders from holding near-month positions (referencing Mercuria's handling in the aluminum market);
• However, data shows that this round of short squeeze is not dominated by a single trader, but rather caused by systemic shortages.

At the same time, in the New York COMEX market:

• The July copper contract price is $4.88/pound ($10,760/ton), significantly higher than LME's $9,703/ton;
• The September contract is $4.93/pound, and the December contract is approaching $5.00/pound.

This indicates that there is an arbitrage space of nearly $1,000/ton between the Chinese and American markets, exacerbating the trend of copper flowing out of China and into the U.S.

5. Price Curve Distortion: Backwardation Structure Extends to 2026

Chart 3: LME Copper Price Forward Curve (2025 vs. Six Months Ago)

As seen in the chart, the white curve as of June 20, 2025, is significantly higher than six months ago (blue line), with the front-end structure showing strong backwardation (spot prices higher than futures), expected to last until June 2026, indicating that the short-term supply crisis in copper is severely disrupting the market pricing system.

6. "Trump Tariffs" Intensify Global Copper Scramble

Don't forget, this round of copper shortage has a political catalyst:

In February 2025, Trump directed the U.S. Department of Commerce to investigate the necessity of copper tariffs, with a report due in 270 days.

This announcement triggered a "run-up effect":

• In April, U.S. refined copper imports exceeded 200,000 tons, a new high in 10 years;
• Global copper sources are accelerating towards the U.S., with inventories in China, Japan, Chile, and other places rapidly tightening.

Postscript

The current copper short squeeze is not merely a simple price speculation, but rather the result of the fourfold factors of capacity imbalance, global arbitrage, policy games, and resource shortages.

Key points to note:

1. Resource countries' discourse power is returning: The shortage of concentrates has allowed mines to regain dominance.
2. Trade routes are being restructured: Chinese smelters are shifting from "domestic sales priority" to "export arbitrage," reshaping the market landscape.
3. Pressure on futures and spot arbitrage is increasing sharply: Structural price differences are significantly raising risks for traders, requiring companies' hedging strategies to be comprehensively upgraded.
4. LME's system is under pressure: Loss of inventory function and frequent short squeezes may necessitate a reconstruction of future exchange rules.

Copper is not only an industrial metal but also an economic warning signal.

This round of copper short squeeze marks a new chapter in the global resource competition and serves as a wake-up call for the transformation of China's smelting capacity Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk