Trafigura Group Subsidiary on Copper: “It would appear the market is generally short and also there seems to be no significant liquidity or inventory around"
From Bloomberg (May 4):
The dominant holding of copper
stockpiles by one company is “adding fuel to the fire” of
limited supplies with traders betting on lower prices, according
to Galena Asset Management Ltd., the London-based unit of
commodity trader Trafigura Group.
Inventories of the metal in warehouses monitored by the
London Metal Exchange fell 38 percent this year to the lowest
since October 2008. Two companies held 40 to 49 percent of
copper stocks and positions expiring in three days as of May 2,
with a dominant holding of 50 percent or more seen for all of
April except four days, according to an LME report used to apply
lending guidelines. Traders betting on lower prices are short.
“It would appear the market is generally short and also
there seems to be no significant liquidity or inventory
around,” Jeremy Weir, chief executive officer of Galena, said
in an interview in Lausanne, Switzerland. “Stocks seem to be
fairly tight, but they seem to be fairly well held, so that’s
adding fuel to the fire.”
Copper for immediate delivery on April 30 traded at $155 a
metric ton higher than the contract for delivery in three months
on the LME, the widest so-called backwardation since August
2008. The backwardation this year first appeared in February.
The premium was $55.50 a ton yesterday.
Buying Copper
Backwardation should encourage buying of later dated
contracts, which is positive for prices, Weir said in the
interview on April 25. “Spread tightness does not necessarily
result in higher prices as might naturally be assumed,” he
said. “It does, however, provide some support as roll costs to
become negative which, if persistent, force shorts to cover.”
That means traders who are short buy back contracts to reduce
their losses if prices are going up. Copper has climbed 8.6
percent this year....MORE