Friday, April 5, 2013

It's On Biatch! CME Looks to Chile Warehouses In Copper Battle With LME

The LME has gotten a bit fat and sassy and has perhaps forgotten that their customer is the end user, not the financial companies who seem to have taken over all aspects of the copper trade, especially the roach motels (it comes in but can't get out) that their 700 or so warehouses appear to have become.
From the Chicago Tribune:

CME sounds out Chile as location for copper warehouses
U.S. exchange operator CME Group is sounding out Chile as the location for a network of warehouses as its copper contract takes market share from the London Metal Exchange, sources familiar with the matter said.

The CME's COMEX contract, often overlooked outside of North America, is eating into the LME's dominance of the global market for copper futures as end-users become increasingly frustrated with the 135-year-old exchange's handling of its warehousing policy.

The trading houses and Wall Street banks that own many LME-registered warehouses are locking metal down in financing deals and releasing only small quantities. Long queues for delivery of metal have put it out of industrial users' immediate reach and undermined the LME as a market of last resort.

Volume growth of the CME contract has prompted the U.S. exchange to look beyond its U.S home territory, and it floated the idea of Chile as a location to members and clients, a source familiar with the discussions said....MORE
This isn't all charity though. As Chile is a producer not a user, there is no natural local market to pull stocks out of inventory meaning the CME is basically offering the warehouse owners free money for joining the store-and-finance guild.