LORD COPPER: Copper producers nervy as funds look to get short

Where to start with the 2011 LME dinner week? Not with the obvious: the potential sale of the exchange, although I do have some views and comments about that

Where to start with the 2011 LME dinner week? Not with the obvious: the potential sale of the exchange, although I do have some views and comments about that.

I’ll put this topic to the side for the moment and come back to it later; it’s a subject that deserves, at the very least, an entire column to itself.

What struck me initially this time around was how sanguine the producers were.

Raging economic problems around the globe – or at least in large parts of it – and yet the miners and producers still seemed content that the Chinese engine will keep pulling the train.

I know China is still the biggest story in town, but I was surprised at how relaxed they seemed, given the way prices – particularly copper – had taken a large hit in recent times.

But traders and brokers saw it slightly differently.

Their LME clients were showing signs of nervousness about the amount of price hedging they haven’t done.

“Just the same as always: when the price is high, they don’t want to know. And when it comes down, they get worried about what they didn’t do when they had the chance,” was the way one very senior broker put it

I think that’s probably a fair representation of the position.

And what it means, I suspect, is that if prices continue to soften, then we can expect to see increased producer selling, which will itself contribute to pushing prices lower.

Global inflation, particularly in energy costs, means that the breakeven point for the mining industries is creeping inexorably upwards, so the pressure will easily become quite acute.

That’s real world economics playing on the market.

But what of the other side of the coin – the investors who shift the billions of dollars of hot money around the world on a daily basis? Well, I found less bullish unanimity this year.

Firstly, there came reports of an outstanding – relatively speaking – performance from one of the most significant metal funds on running a short position in copper.

Then I found a variety of friends who run hedge funds far more open to the prospect of shorting the metals than has been the case for several LME weeks past.

Indeed, it was interesting to hear the discussion of looking for the opportunities to get in on the short side.

Now I’m not saying the game is definitively over; clearly, the Chinese engine is ploughing on – although even there the cracks are just beginning to show, most notably in property.

But it seems to me that both parts of the metals market, physical trade and speculation, are suffering at the very least a fit of hiccoughs.

Add in the perilous state of the euro, and the potential disaster looming there, and things don’t look too bright.

True, lots of money was splashed around during the week and participants seemed to enjoy themselves. Similar, perhaps, to the long summer of 1914, when a cataclysm was just around the corner? Or am I too pessimistic?

What to read next
European energy analysts’ “what if” questions have turned into “what now” questions in the wake of Russia’s stalled war efforts against Ukraine
Despite the metal being classed as “strategic” in the European Union’s proposed Critical Raw Materials Act (CRMA), questions remain about the future of magnesium supply in Europe, market participants have told Fastmarkets
The publication of Fastmarkets’ assessment of the Southeast Asia copper premium for Tuesday March 28 was delayed due to a scheduling error.
Recycling is increasingly being considered the best way to reduce carbon emissions from metals production, and huge investment in recycling facilities has been seen in recent years, with robust merger and acquisitions activity
As the world moves toward a shared goal of net-zero emissions, Claire Patel-Campbell talks to Outokumpu’s head of group sustainability, excellence and reliability about the place of the energy-intensive and high emissions ferro-chrome industry in a greener economy
Energy has been at the top of the agenda for the ferro-chrome market over the last couple of years, as prices fluctuate and access to steady supplies becomes more uncertain
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.