The loss of legitimacy

London's calling

They will not force us
They will stop degrading us
They will not control us
We will be victorious

— Muse, “Uprising” (2009)

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Something broke in London during the last week (mid Oct ‘25). Not temporarily, not technically—structurally. Atlantic Copper, Europe’s largest copper smelter processing over 1 million tons of concentrate annually, announced it would abandon the industry’s 35-year-old benchmark pricing system in favor of bilateral “take it or leave it” contracts. Three days earlier, the London silver market seized completely with lease rates exploding from typical sub-1% levels to 35-39% overnight and zero available liquidity. These aren’t isolated disruptions—they’re the death rattle of a financialized pricing system that has manipulated physical commodity markets beyond the point of repair.

Javier Targhetta, Freeport-McMoRan’s Senior Vice President who has led copper concentrate negotiations for 35 years, chose his words carefully during LME Week:

“Atlantic Copper would not accept a zero tolling fee... We don’t call those numbers benchmark; they are nonsense. Over the last 35 years, I have never seen anything like this.”
-- Javier Targhetta

When the man who helped establish and maintain the copper benchmark for three and a half decades declares it “nonsense,” the system has lost all legitimacy.

This wasn’t a minor adjustment or negotiating tactic—Freeport-McMoRan effectively nuked the pricing framework from orbit.

Let me explain why: treatment charges collapsed from $80 per ton in 2024 to $21.25 in 2025, with spot transactions hitting negative $100 per ton by October.
Differently said: smelters should now pay miners for the privilege of processing ore.

Since treatment charges typically account for nearly one-third of smelter revenues, the industry faces existential economics where the benchmark produces negative pricing—meaning the benchmark itself has become destructive rather than descriptive.

The silver crisis three days earlier revealed identical structural failure but with even more dramatic symptoms. On Friday, October 10, 2025, the London market froze. Anant Jatia of Greenland Investment Management stated what no central banker wanted to admit:

“There is no liquidity available currently. What we are seeing in silver is entirely unprecedented.”
-- Anant Jatia, Greenland Investment Management

Lease rates that normally hover under 1% exploded to 35-39% overnight—credit card interest rates applied to commodity lending. Physical silver holders earned those rates just by lending their metal while short sellers faced crushing costs. The iShares Silver Trust showed zero shares available for borrowing with 12% borrow fees. Then came the most revealing symptom of all: cargo planes were chartered to fly silver from New York to London at premium freight rates because even one day’s delay meant punishingly expensive lease costs. Markets don’t airlift commodities unless the paper system has completely divorced from physical reality.

The correlation isn’t coincidental—it’s causal. Producers across multiple metals simultaneously realized they hold the leverage when physical metal is genuinely scarce while paper markets remain oversupplied with synthetic derivatives. Chile’s Antofagasta set mid-year 2025 copper settlements at $0 per ton with Chinese and South Korean smelters. Multiple Japanese smelters declared production “holidays,” refusing unprofitable terms. For 2026, the benchmark is forecast to enter negative territory for the first time in history. When benchmarks produce results the market calls “unacceptable” yet participants have no choice but to accept them, those benchmarks have failed their fundamental purpose.

The London Bullion Market Association faces parallel breakdown. David Jensen’s October analysis documented that London’s “free float” of available silver collapsed from 850 million ounces in 2019 to just 200 million ounces in 2025—a 75% decline. Meanwhile, London has 380 million ounces of outstanding spot contracts against only 36 million ounces of deliverable float. LBMA operates with claims exceeding available metal by a huge margin. Regular readers know my point of view: that’s not a market—it’s a leveraged pyramid scheme that functions until someone demands delivery.

The squeeze that is happening right before our eyes proves this point. Deliciously violently. Ole Hansen of Saxo Bank summarized what market participants knew but couldn’t say publicly:

“The silver market is showing clear signs of stress amid severe physical tightness in the London cash market.”
-- Ole Hansen, Saxo Bank

Gold shows identical symptoms but at a slower motion. The Bank of England vault delivery delays reached 4-8 weeks in early 2025 versus contractual 2-3 day standards—technical defaults that London excused as “logistics challenges.” Then approximately 2,000 metric tons of gold moved from London to COMEX vaults in Q4 2024-Q1 2025. Physical holders chose American vaults over the LBMA system, voting with their metal. When your century-old market loses 2,000 tons of trust, you don’t have logistics problems—you have legitimacy problems.

Nickel provides the precedent. After the LME’s March 2022 crisis when prices hit $100,000/ton and trading was suspended with trades retroactively canceled, battery manufacturers abandoned LME pricing entirely. They now use Chinese renminbi prices linked to nickel sulphate rather than LME Class 1 contracts. The industry created a parallel pricing structure outside London’s framework because when an exchange can unilaterally cancel executed trades, participants question whether any price is real. That credibility damage proved permanent.

The pattern reveals what financial media won’t state directly: exchanges trade predominantly paper instruments. But they’ll lose pricing authority when the physical supply tightens (ie: when participants actually prefer physical delivery above cash settlements).
The LME quotes a copper benchmark while actual transactions occur at wildly different terms—some at -$100/ton, others at $0, others at spot-index linked deals. There’s no longer a unified “LME copper price”—there are multiple parallel markets with different economics. The benchmark has become a useful fiction that describes nothing accurately.

London silver’s October crisis demonstrated this bifurcation most clearly. While COMEX futures showed one price, acquiring actual deliverable silver in London required paying 35-39% lease rates plus substantial premiums. The London-New York spread reached $2.70-$3.00—levels not seen since the Hunt Brothers squeeze in 1980. The “paper price” became irrelevant to anyone needing physical metal. They paid whatever holders demanded because exchange quotes had divorced from acquisition cost.

This divorce between paper and physical isn’t some temporary dislocation—it is very likely a permanent structural change driven by genuine deficits meeting synthetic abundance. The question isn’t whether traditional benchmarks retain legitimacy. They’ve already lost it when industry leaders publicly call them “nonsense” and physical markets trade at massive premiums over exchange quotes. The question is what will replace this century-old pricing framework when the institutions that ran them—the LME, LBMA, COMEX—are revealed to be primarily derivatives casinos with tenuous connection to underlying commodities.

Freeport-McMoRan’s decision to abandon the benchmark they helped create for 35 years represents the most significant structural change in commodity markets in half a century.
Not because one smelter changed tactics, but because it destroyed the fiction that everyone else was maintaining.

When the emperor has no clothes, it takes just one voice to end the charade.

Targhetta provided that voice.

The copper benchmark, London silver market, LBMA delivery system—these are all clothes the emperor no longer wears.

What remains is naked power: producers with metal dictate terms to consumers who need it and exchanges who can’t deliver it.