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What are the hot topics for LME Week this year?
1) Warehousing: the news reported by Metal Bulletin that warehouses in New Orleans are offering $100-per-tonne incentives for copper – above the level that 2012 annual premiums were settled – looks likely to be just one thing that gives new impetus to the debate about warehousing. The whole market – exchange executives, warehouse keepers and owners, brokers, producers and consumers – are going to consider whether there is really a problem, the degree to which the long queues for aluminium could be replicated in other markets, and how possible it is to prevent contagion by measures such as separate load-out rates.
2) In addition to the incentives being offered for copper, fundamentals will come into focus. Demand for some copper products in China looks so far to have been flat in 2012, according to well-placed executives in the copper market, such as Luvata’s Bob Kickham. This kind of outlook will have to be weighed carefully by copper producers and consumers as they lock themselves in talks for 2013 premiums. Figures from the International Wrought Copper Council – which just appointed Sumitomo Electric Industries ceo Masayoshi Matsumoto as chairman – will be released next week, too, which will add more grist to the debate.
3) Negotiations in aluminium will not be easy. Sources were indicating to Metal Bulletin last week that consumers are unwilling to lock in high premiums. As in copper, more material could be sold in the spot market as a result.
4) LME brokers are scrutinising the possibility that regulators may outlaw non-segregated accounts as a result of the disastrous bankruptcy of MF Global. While some believe this development is inevitable, they also want to establish whether all segregated clients will have to post their margins in designated accounts at the clearing house. If that turns out to be the case, it could have a profound effect on the way in which brokers are able to service their clients, making it impossible for brokers to net off client positions, for example. This, according to some of those polled by Metal Bulletin last week, could drive major changes in how the market operates. Their concern is that it could disincentivise hedging by making it more expensive – not, presumably, the result the regulators want.
5) Last but not least, is the Hong Kong Exchange itself, whose takeover of the LME was backed overwhelmingly by members earlier this year, and is set to be approved next month. Market participants expect the LME’s new owner to take a softly-softly approach, with few radical changes in the immediate future. There are expectations that growth in volumes from China will go hand-in-hand with the increasing engagement between Chinese companies and the global economy. But proposals such as an early ring to service clients in Asian hours will merit discussion among LME brokers keen to do all they can to see volumes from Asia continue to expand.
For all of our LME Week coverage, click here.
Alex Harrison aharrison@metalbulletin.com Twitter: @alexharrison_mb