From OilPrice.com:
The London Metal Exchange is hoping so.For a quick tutorial on where tis is going we consult FT Alphaville:
The world's go-to market for base metals announced reforms yesterday designed to lift prices across the metals complex....
...This has led some buyers to shun purchases on the exchange. Instead looking for alternative platforms like the OTC markets.
The end result being a long-running suspicion in the industry that LME prices actually run at a discount to the true market price for metals. If copper is trading at $3.50 per pound, the true market price might be $3.80. But buyers through the LME are applying a $0.30 discount because they know they'll have to wait months to actually get the supply....
...This of course doesn't change anything in terms of the real value of these metals. But it would create a major shift in the visibly-priced portion of the market. Especially given LME estimates that discounts for metals like lead and zinc may be running 10 to 15%.
This visible price is something many investors focus on, to determine the health of these sectors. If screens suddenly show metals prices rising 15%, it will get a reaction....MORE
Beware the darkside of the metal market force
Goldman Sachs launched a spirited defence of warehouse queues last week, arguing that they don’t have an unwarranted effect on physical prices because the hoarding is justified by curve dynamics.Here are Kitco's spot prices, we'll revisit all this in a moth or so:
The view, in short, is that because the curve is rewarding the market to store, these supplies are not coming at the cost of supply to the market. In fact, in their eyes, the hoards provide a balancing mechanism to what would otherwise be an oversupplied market. Yay for warehouses! They’re just keeping prices balanced!
As they noted:
Moreover, the forward curve for the “all-in” Midwest transaction price is in full carry, meaning that it more than pays for the cost of storage off-exchange, which is indicative that there is no demand for the metal going into storage, whether it is in the queue or not.The so-called basis exposure which appears between the physical and futures market, especially when the two fail to converge, is in their eyes a natural cost and risk of doing business. So, while new LME rules may successfully force hoards out of the system and reduce the basis between futures and LME metal, they won’t necessarily stop the basis risk popping up elsewhere — because as long as the curve is priced to reward hoarding, hoarding will take place somewhere. There is ultimately much more to the market than just the LME system.
Or as Goldman put it:
Policies aimed at reducing the queue and lowering basis risk (premium) will impact the economic role of the exchange market, but have no impact on the economic role of the physical market. Such policy shifts may reduce basis risk with the cost of reducing transparency, liquidity and impacting the ability of the LME to create a market of “last resort”.This is a point FT Alphaville has been raising for a while. In our opinion, the LME is naive to think that the warehouse problem can be resolved by enforcing stricter load-out rates, since the hoarding issues are a product of a curve structure which incentivises hoarding, and not the result of a malevolent banking conspiracy designed to slowdown deliveries. (Not to say banks don’t exploit the situation.)...MORE
Zinc Bid/Ask $0.8489-$0.8494
Copper $3.2515-$3.2538
Aluminum $0.8002-$0.8004
Nickel $6.2781-$6.2804
As far as I can tell zinc is the only metal of interest on the long side.
And from the LME:
Aluminium
LME Official Prices, US$ per tonne
| Contract | Price |
|---|---|
| Cash Buyer | 1775.50 |
| Cash Seller & Settlement | 1776.00 |
| 3-months Buyer | 1820.00 |
| 3-months Seller | 1820.50 |
| Dec 1 Buyer | 1910.00 |
| Dec 1 Seller | 1915.00 |
| Dec 2 Buyer | 2000.00 |
| Dec 2 Seller | 2005.00 |
| Dec 3 Buyer | 2088.00 |
| Dec 3 Seller | 2093.00 |
Zinc
LME Official Prices, US$ per tonne
| Contract | Price |
|---|---|
| Cash Buyer | 1868.00 |
| Cash Seller & Settlement | 1868.50 |
| 3-months Buyer | 1903.50 |
| 3-months Seller | 1904.00 |
| Dec 1 Buyer | 1973.00 |
| Dec 1 Seller | 1978.00 |
| Dec 2 Buyer | 2030.00 |
| Dec 2 Seller | 2035.00 |
| Dec 3 Buyer | 2075.00 |
| Dec 3 Seller | 2080.00 |
Copper
LME Official Prices, US$ per tonne
| Contract | Price |
|---|---|
| Cash Buyer | 7118.50 |
| Cash Seller & Settlement | 7119.00 |
| 3-months Buyer | 7117.00 |
| 3-months Seller | 7118.00 |
| Dec 1 Buyer | 7150.00 |
| Dec 1 Seller | 7160.00 |
| Dec 2 Buyer | 7190.00 |
| Dec 2 Seller | 7200.00 |
| Dec 3 Buyer | 7215.00 |
| Dec 3 Seller | 7225.00 |
