Premiums for nearby LME copper contracts soar as inventories dwindle

LONDON, June 20 (Reuters) - Premiums for nearby copper contracts on the London Metal Exchange (LME) have jumped to their highest since October 2022 because of low inventories and large holdings of cash contracts and warrants, traders said.

Warrants are title documents conferring ownership of metal.

The premium or backwardation for buying copper tomorrow and selling it the day after – known as tom-next – is trading above MCUT-0=LX $48 a metric ton, compared with a discount of $2 a ton at the start of week.

Meanwhile, the premium for the cash copper contract over the three-month forward MCU0-3 is trading at $180 a ton from a $3 premium only a month ago.

LME data shows there is one company holding a dominant position of more than 90% 0#LME-WHC copper warrants and cash contracts and two companies holding 50%-79%.

The dominant position will have triggered the LME's lending guidance, which require those with large warrant or trading positions to lend metal to other market participants at specified premium levels.

The guidance aims to ensure market liquidity and prevent the squeezing or cornering of the market by a single entity.

Copper stocks in LME registered warehouses at 99,200 tons have dropped more than 60% since the middle of February and are at their lowest since August 2023 MCUSTX-TOTAL.

Cancelled warrants or metal earmarked for delivery show 45% or another 44,800 tons of copper is due to be delivered out.

Much of the copper taken from LME warehouses has been shipped to the United States, where prices soared after February when President Donald Trump ordered a probe into possible tariffs on copper imports to rebuild U.S. production.

COMEX HGc1 copper at around $4.781 cents a lb or $10,540 a ton compares with $9,690 a ton for the three-month forward CMCU3 on the LME.

Copper is a key material for power and construction.