50,000 tons of warehouse receipts were canceled in one day! JP Morgan: Signifies that copper prices have entered a "more volatile and urgently bullish mid-stage"
JP Morgan pointed out that the massive cancellations on the LME indicate that the copper market has entered a volatile "mid-stage." The core logic is that the siphoning effect from the United States forces buyers in non-U.S. regions to scramble for spot purchases, causing LME inventories to fall below the 100,000-ton threshold, triggering an asymmetric bullish outlook. Their "bullish endgame" prediction suggests that LME prices must rise significantly enough to reverse the arbitrage window for U.S. copper and force resources to flow back from the U.S. in order to end this bull market triggered by inventory mismatches
A record cancellation of copper inventory at the London Metal Exchange (LME) is pushing the copper market into a more volatile bullish phase.
According to news from the trading desk, JP Morgan's latest metals weekly report shows that a copper warrant of up to 50,000 metric tons was canceled at LME warehouses this Wednesday, marking the largest single-day operation since 2013. This event is viewed by the bank as the "end of the beginning" of the copper price bull market, signaling that the market will enter a "mid-stage" characterized by greater volatility and a clearer upward trend.
This sudden event quickly ignited market sentiment. Boosted by this, the LME three-month copper price rose 5% over the past week and briefly broke through $11,500 per ton on Wednesday, setting a new high.
Analyst Gregory C. Shearer and his team believe that this warrant cancellation is not an isolated incident but a direct response to the increasingly acute structural tensions in the global copper market. Behind this is the sustained strong "pull" effect of the U.S. market on refined copper, leading to supply shortages in other regions of the world, forcing them to turn to the LME for spot resources.
This dynamic has caused the LME's "on-warrant" inventory available for delivery to plummet to below the critical psychological and technical level of 100,000 tons. JP Morgan warns that when inventories drop to such low levels, the market is highly susceptible to entering a "backwardation" state where spot prices exceed futures prices, opening up a trading environment with asymmetric upward price risks.
Root Causes of Supply-Demand Imbalance: U.S. Demand Siphoning and Global Inventory Mismatch
The bank believes that while ongoing supply disruptions provide fuel for the bull market, such as the force majeure at Freeport's Grasberg mine and Ivanhoe Mines' downward revision of its 2026 production guidance, the core basis of its bullish view lies in the severe mismatch of global inventories and the continuous attraction of refined copper to the U.S. market. This dynamic is reshaping the trade flows and pricing mechanisms of global copper.
Data shows that copper prices in the U.S. market continue to maintain a high premium. Despite recent increases in LME prices, the price difference between the Commodity Exchange (COMEX) and LME remains significant. For example, the COMEX copper contract expiring in March 2026 is priced about $390/ton higher than the corresponding LME contract.
This persistent arbitrage opportunity clearly incentivizes the flow of global refined copper to the U.S. The direct consequence is that buyers in other regions must pay higher prices to obtain copper resources.
According to news reports, major producer Codelco has quoted annual long-term contract premiums to major consumption centers as high as $325/ton and above, with particularly sharp increases observed in the Asian market.
The Spot Market Becomes a New Battleground, LME Inventory in Crisis
High annual contract premiums are forcing end consumers outside the U.S. (such as in Asia and Europe) to increasingly abandon locking in high-priced long contracts and instead seek supplies in the spot market.
JP Morgan analysis states that this shift has made copper inventory at the LME extremely attractive. Even though most of the copper in LME warehouses cannot be shipped directly to the U.S. due to origin issues (such as facing U.S. tariffs or bans), they can be sold to consumers in Asia, Europe, etc., at prices that are more competitive compared to the high premiums offered by producers for long contracts.
In this context, the cancellation of 50,000 tons of warrants on Wednesday and 7,500 tons on Thursday is seen as an action taken by traders anticipating increased spot demand in Asia and other regions. This concentrated intention to take delivery has reduced LME warrant inventory to below 100,000 tons.
JP Morgan emphasizes that this is a critical threshold; history shows that inventory levels below this point often trigger a sharp expansion of "spot premiums."
Below the Key Threshold: An Asymmetric Bullish Pattern Has Formed
The inventory of warrants falling below 100,000 tons not only indicates a change in the structure of the futures curve but may also push copper prices into an "asymmetric bullish pricing mechanism."
JP Morgan reviewed data since 2000 and found that during periods when inventory of warrants is below 100,000 tons, the weekly probability of LME three-month copper prices rising is 57%, with a median weekly increase of 0.64%; in contrast, when inventory is above 100,000 tons, these figures are 51% and 0.06%, respectively. When inventory is below 100,000 tons and continues to decline, bullish signals become even stronger.
- Spot Premium (Backwardation) Expands Sharply: Historical charts show that when deliverable inventory is below 100,000 tons, the spot price at LME often "rises sharply" against the three-month futures. Currently, the spot price has turned into a premium over the three-month futures since mid-November, with significant upside potential remaining.
- Asymmetric Bullish Pricing Mechanism:
Since 2000, when LME deliverable inventory is below 100,000 tons, LME three-month copper prices have recorded increases in 57% of the weeks, with a median weekly price increase of 0.64% (whereas when inventory is above 100,000 tons, the proportion of weeks with increases is 51%, and the median increase is 0.06%).
When inventory is below 100,000 tons and is decreasing week-on-week (as is the case this week), bullish signals are even stronger: the proportion of weeks with price increases rises to 64%, and the median weekly return exceeds 1%.
"Bull Market End Game": Spot Short Squeeze and Arbitrage Reversal
JP Morgan depicted the current copper market scenario as a "bull market end game" in its report. As long as the threat of tariffs on refined copper from the United States remains, the logic of this end game is very clear: the refined copper market outside the United States is tightening, leading to a continuous depletion of LME inventory.
The decline in inventory will drive the LME spot premium structure to steepen sharply and push up LME futures prices. According to data since 2000, when LME deliverable inventory falls below 100,000 tons and continues to decline, the probability of LME three-month copper prices rising in that week is as high as 64%, with a median weekly return rate exceeding 1%.
Ultimately, the surge in LME prices and spot premiums aims to "forcefully reverse" the current open COMEX-LME arbitrage window. When LME prices are high enough, it will incentivize copper to flow out of the inventory-rich U.S. market back into the LME system or supply other regions that need spot copper more, thereby achieving a global market rebalancing.
Short-term Tug-of-War: The Market is Still in Play
Although the long-term bullish logic is clear, JP Morgan also pointed out that the market will still be in a "tug-of-war" in the short term. Currently, not all major consuming markets have fully kept pace with the rising prices. The report mentioned that demand in a major consuming region is still adapting to high copper prices, which may provide some breathing space for the market.
In this context, some smelters may be attracted by high LME prices to engage in opportunistic exports, thereby supplementing LME inventory. This will create a dynamic game between traders' deliveries (warehouse receipt cancellations) and producers' deliveries.
However, JP Morgan firmly believes that this short-term export behavior will ultimately not fill the overall market supply tightness. Given the backdrop of global supply disruptions and potential resource scarcity concerns, the long-term downward trend in LME inventory is difficult to reverse. Therefore, the bank remains confident in its judgment regarding the tightening of LME copper price spreads and rising prices.
The above content is from [Chasing Wind Trading Platform](https://mp.weixin.qq.com/s/uua05g5qk-N2J7h91pyqxQ).
For more detailed interpretations, including real-time analysis and frontline research, please join the【 [Chasing Wind Trading Platform ▪ Annual Membership](https://wallstreetcn.com/shop/item/1000309)】
[](https://wallstreetcn.com/shop/item/1000309)