The London copper market remains historically tight, with a severe shortage of available stocks pushing prices near all-time highs and making buyers pay huge premiums for spot copper.
Golden Ten Data reported on Tuesday that copper inventories on the London Metal Exchange (LME) recently fell to the lowest level since 1974. Available inventory fell sharply by 88% this month.
LME The sudden inventory collapse is an extreme example of supply shortages in commodity markets as soaring electricity costs threaten production and the coronavirus pandemic disrupts global supply chains. Benchmark copper futures have gained 10% in the past week and are nearing record levels. Spot contracts rose even more, with spot prices soaring above the all-time high set in May.
The London Metal Exchange (LME) has launched an investigation into copper trading following sharp fluctuations in copper prices.
According to people familiar with the matter, the LME has been sending emails to members since early August requesting more details about customer trading activities in copper warrants. The email was sent by the LME's market supervision department and asked members and customers about the commercial reasons for trading copper warehouse receipts.
In addition, LME will take actions to ensure orderly trading in the copper market. Measures include:
Modifying copper loan rules (lending rules);
Setting limits on spot premiums for tomorrow’s next day (tom-next) contract;
For specific contracts Implement a deferred delivery mechanism.
These measures are temporary and will be reviewed at the discretion of the Special Committee. Citigroup Metals analyst Oliver Nugent said by phone from London:
"This is an extreme situation. Across the metals market, an important theme is that consumers want to build up their working stocks, which is exacerbating tensions. "
At present, not only the price difference between copper spot and three-month futures contract is still at an unprecedented height, but the price difference between tomorrow and the next day's contract is also astonishingly high. The temporary restrictive measures adopted by the LME may help to prevent arbitrage trading.
The culprit of the copper market chaos appears to have been identified. Foreign media quoted people familiar with the matter as saying that Trafigura Group accounted for a large part of the large number of orders to withdraw copper from LME warehouses.
People familiar with the matter said Trafigura The move comes against the backdrop of extremely low global inventories, although it is not uncommon for physical traders to withdraw metal from exchanges to ship to customers, and Trafigura is not one of the recent It was the only trading house to pull the metal from the exchange in March, but total requests to withdraw more than 150,000 tonnes of copper from LME warehouses in the past two months have almost depleted the exchange's available stocks, with Trafigura accounting for a large share of that. part.
Financial blog zero hedging said that this is not surprising, because during the epidemic, Trafigura has become one of the most eye-catching bulls in the global copper market . Trafigura chief trader Kostas Bintas predicts copper prices will reach $15,000/ton in the next few years, as the industry witnesses booming demand for electric vehicles and renewable energy, which will support a new super cycle for copper.
Trafigura traded 4.4 million tonnes of copper last year, 1 million tonnes more than its biggest rival, Glencore (Glencore). After years of fierce competition, it overtook Glencore as the top trader in 2019 and widened its lead as the latter's trading volumes shrank.
Source: Jinshi Data
