Copper prices on the LME rose back above $13,000/t as Chinese participants returned after the Lunar New Year on Tuesday, lifting import demand. The Yangshan copper premium increased to $53/t, a two-month high, from about $33/t before the holiday.
Demand has improved while inventories remain elevated. SHFE stocks are still high after seasonal builds, and LME inventories have continued to rise, leaving the global market well supplied.
Market Structure Signals
LME time spreads are in deep contango, which points to ample nearby availability. Any move towards tighter spreads would likely need clear inventory falls in both China and LME warehouses.
The market is showing early signs of demand recovery, but high stock levels may limit near-term tightening. Attention is on whether the import arbitrage stays open and supports LME stock declines alongside faster-than-seasonal falls in SHFE inventories.
LME COTR data shows funds cut their net long in copper by 3,393 lots to 33,882 lots, the lowest since October 2023. Money managers reduced net long aluminium by 4,486 lots to 92,972 lots, while zinc net long fell by 844 lots to 44,587 lots.
We recall that at this time in 2025, the market was contending with high inventories and speculative selling, even as Chinese demand was just beginning to stir after the holidays. Today, the situation has reversed, with LME copper stocks having fallen over 60% in the last year to multi-year lows near 75,000 tonnes. This fundamental tightening has supported prices, which are now holding firm above $14,500/t.
Positioning And Strategy
The deep contango that signaled ample supply in early 2025 has flipped to a persistent backwardation, with the cash-to-three-month spread currently commanding an $80/t premium. This indicates an urgent need for immediate physical metal, a situation reinforced by the Yangshan premium which is now trading near $110/t as China’s clean energy infrastructure drive accelerates. These are clear signs that the demand we saw starting last year has now significantly outstripped readily available supply.
That early 2025 caution, where funds were cutting their net long positions, has been replaced by strong conviction. Money manager net longs in copper now sit near 85,000 lots, reflecting a crowded bullish consensus that anticipates further supply deficits. This heavy positioning suggests that while the trend is upward, the trade is becoming vulnerable to sharp pullbacks on any negative news.
Given the market’s tightness and stretched speculative positioning, outright long futures carry significant risk of a sudden correction. Traders should consider buying call spreads to capture further upside with a defined risk, protecting against the volatility inherent in a crowded trade. We also see opportunities in relative value trades, such as going long copper against aluminum, to capitalize on copper’s superior fundamental story while hedging against a broader macroeconomic downturn.
