The copper market experienced one of the largest squeezes on August 17 2026, before the August 19 delivery window at the London Metal Exchange (LME), as tight deliverable inventory pushed LME prices close to record highs and sent the backwardation between LME cash and three-month (3M) to levels unseen since 2021. LME three-month copper futures price surged 1.7% intraday to once reach $14,396/tonne on August 17, just below the all-time high of $14,527.50/tonne set in January 2026. Meanwhile, the LME cash-3M price spread widened to a premium of $543.50/tonne. Yet, signs of relief soon emerged as inventory began returning to the exchange system later, suggesting that the most extreme phase of the squeeze may have passed. However, the broader supply concerns underlying the copper market will persist.
Source: LME, Mysteel
Shrinking deliverable inventory drives LME squeeze
The core driver behind the latest LME copper squeeze was the rapid decline in available exchange inventory. LME copper inventory has fallen steadily in 2026 since reaching a peak of 402,625 tonnes in mid-April, standing at only 204,975 tonnes by August 14, representing a decline of nearly 50%. More importantly, registered warrants declined much faster, falling from 358,450 tonnes in April to only 94,875 tonnes by mid-August, down 73.5%. Meanwhile, canceled warrants, representing metal scheduled to leave LME warehouses, climbed to 110,100 tonnes, accounting for more than half of total inventory as of August 14. Therefore, although the exchange still reported more than 200,000 tonnes of copper inventory, the amount of freely available metal for delivery was significantly lower. This created the conditions for a classic physical squeeze. With deliverable inventory shrinking rapidly and the August delivery window approaching, market participants holding short positions faced increasing difficulty securing physical copper, forcing them to pay increasingly higher premiums to obtain metal.
The key issue behind the squeeze was not the actual shortage of refined copper, but the uneven distribution of available inventory. In 2025, the U.S. launched a Section 232 investigation into refined copper, creating strong market expectations of imminent tariff implementation. The U.S. Department of Commerce proposal recommended a 15% import tariff starting in 2027, increasing to 30% in 2028. However, the White House has not yet issued a final determination so far. Driven by pre-tariff stockpiling, global traders have actively redirected material flows, sustaining a high COMEX-LME cross-market spread, which has directly attracted copper supplies into the U.S. market. In July 2026, U.S. refined copper imports reached 200,000 tonnes, marking a 12-year high, while COMEX copper inventory climbed to 672,954 tonnes as of August 20, a 50% increase year-to-date and setting a new multi-year high.
Source: COMEX, LME, Mysteel
As long as market expectations of impending tariff implementation remain, the COMEX-LME spread is likely to stay elevated, continuing to channel global deliverable copper toward U.S. warehouses, resulting in a sustained depletion of deliverable resources in LME warehouses. This regional imbalance has transformed the LME market into a much tighter environment, which is fragile to further supply disruptions.
Squeeze pressure eases but market risks remain
The most intense phase of the LME squeeze appears to have eased as some previously unavailable inventory returned to the exchange system. LME copper warrant inventory increased for the eighth consecutive day as of August 20, which recorded the largest single-day increase since 2024 of 35,650 tonnes on August 19. Meanwhile, cancelled warrants continued sharply declining from August 10, with the cancelled warrant ratio dropping to 30.49% on August 20. The recovery in registered inventory suggest that some market participants have taken advantage of the elevated nearby premiums by selling spot copper while buying back deferred contracts at lower prices, effectively easing immediate delivery pressure.
However, the market remains highly sensitive to changes in regional flows. If tariff expectations weaken or the policy is eventually abandoned, copper currently concentrated in U.S. warehouses could gradually return to international markets, narrowing regional price spreads and reducing pressure on LME inventory. Until then, LME inventory will remain vulnerable to renewed tightening.
Tight copper fundamentals persist
While tariff-related flows explained the immediate LME squeeze, the longer-term copper outlook is shaped by tightening fundamentals.
The upstream copper concentrate market remains under severe pressure. Mysteel's clean copper concentrate spot treatment charge (TC) index stood at -$176.22/dmt as of August 14, continuously declining entering 2026 and reflecting historically tight availability, which could also be reflected in shrinking global concentrate shipments.
Source: Mysteel
Extremely low TCs indicate that smelters are under severe losses, and are competing aggressively for limited concentrate supply. Although strong sulfuric acid prices have provided support to smelter margins, acid prices have started to decline recently, increasing operational pressure. Some smelters have already begun adjusting production strategies by changing raw material blends to produce more acid for profits, indirectly dampening refined copper output.
The tightening concentrate market is compounded by weaker scrap availability. Under stricter invoice compliance requirements, the circulation of tax-compliant copper scrap has become increasingly limited in China, restricting raw material access for secondary copper processors. The impact is in two ways. First, reduced scrap availability has weakened an important supplement to refined copper smelting raw materials. Second, higher scrap premiums have encouraged some downstream manufacturers to turn to refined copper, adding additional pressure to the refined market. With both concentrate and scrap supply tight, the refined copper market has lost some of the traditional buffers against supply disruptions.
Source: Mysteel
China's refined copper output has began to reflect these pressures. According to Mysteel's survey of 60 smelting enterprises, China produced 1.1388 million tonnes of refined copper in July 2026, down 4.66% year on year and 0.55% month on month. Raw material shortages contributed to approximately 11,000 tonnes of production losses during the month, while scheduled maintenance at several smelters further weighed on output. For August, China's refined copper production is expected to recover slightly to 1.1445 million tonnes, but remain 3.65% lower year on year. Mediocre output in China is likely to further tighten global supply aside from the U.S. tariff impact.
Source: Mysteel
Summary
Overall, the August 17 LME squeeze was ultimately a battle over available metal rather than evidence of an immediate global copper shortage. As some inventory return to exchange warehouses, the extreme physical tightness is likely to moderate. Nevertheless, with exchange inventory vulnerable, copper concentrate supply tightening, scrap availability declining, and demand increasingly driven by electrification and AI infrastructure, the copper market has become more sensitive to any disruption in supply flows. The squeeze may fade, but the underlying scarcity narrative remains intact. Copper's next move will depend not only on speculative positioning and trade policy, but increasingly on whether global supply growth can keep pace with a rapidly changing demand landscape.
Written by Mingyuan Wang, wangmingyuan@mysteel.com
