Active borrowing for cash copper to April on the London Metal Exchange (LME) fired up the benchmark cash/threes spread on Wednesday, with backwardation increasing to $115 a tonne, up from Tuesday's $80, the widest for nearly seven years.
Traders said pressure on nearby copper stemmed from an extreme shortage of spot availability - forcing shorts to roll forward, or in some cases pay penal overnight rates, to meet commitments. LME warehouse inventories are continually falling, and much of the metal remaining in store is not available.
On Wednesday, LME copper stocks fell 5,500 tonnes to 235,050 tonnes, the lowest since August 1997, having fallen almost without interruption since mid-December 2003, when they stood at 450,000 tonnes.
Of the remainder, cancelled warrants account for 91,800 tonnes.
"Physically, it is so tight. It is a surprise that this (backwardation) rise, did not happen sooner," one trader said.
Others said physical premiums were rising all the time - $200 was being asked for Grade A deliverable copper in Europe and $100 for standard Russian cathode.
Other key nearby rates were higher as well. Cash to the April 'third Wednesday', around $15 initially, shot out to $35.
"A lot of it stemmed from the TOM (tomorrow/next day)," another trader said.
TOM/next, which represents last-ditch business against the previous day's cash/one day and is allowed up to 1230 GMT, was at $12/13. This is close to the maximum premium of 0.5 percent of the cash price that LME rules stipulate that longs holding 50 percent or more of warrants and cash positions are allowed to ask - currently $15.
LME data for March 15 shows one large long position holding between 50 and 80 percent of cash and warrants.