***LORD COPPER: Don’t stand in the bulls’ way as dust settles

Now that the dust has settled on another LME week, perhaps it’s worth having a look at some of the topics that were exercising the industry’s minds in London last week. The one area where there seemed to be almost total agreement was that prices still seem to be locked in a bull phase. But don’t get me wrong; that doesn’t mean everybody I chatted with was rampagingly bullish. Alongside those who take the view that commodity asset values can only go up, I found a surprising number who, almost despairingly, agreed that standing in front of the freight train of the current market was not an option.

Now that the dust has settled on another LME week, perhaps it’s worth having a look at some of the topics that were exercising the industry’s minds in London last week.

The one area where there seemed to be almost total agreement was that prices still seem to be locked in a bull phase.

But don’t get me wrong; that doesn’t mean everybody I chatted with was rampagingly bullish.

Alongside those who take the view that commodity asset values can only go up, I found a surprising number who, almost despairingly, agreed that standing in front of the freight train of the current market was not an option.

There are, I think, a couple of reasons for that. The first is quite simple, and seems to be prevalent amongst small and medium-sized trading companies.

It concerns finance; the higher prices go, the bigger the capital outlay needed to finance physical business. We all look at the higher absolute potential profits generated by higher prices, but the corollary of greater capital utilisation does undoubtedly put a strain on resources.

Sadly, I think they are going to have to wear this one a bit longer.

The other principal concern over continuing high prices is, seemingly, more a philosophical one. Historical fact shows that prices are cyclical, within the very long-run trend.

The concern I detected amongst some of the gathering last week – and I would be first to admit that it was mainly expressed by some of the older market participants – is that the seemingly relentless nature of the price surge will, in the end, result in a bigger collapse, as the market reverts closer to its mean.

But I didn’t come across many people prepared to run shorts in expectation of any rapid developments. I guess the different stances represent where one comes from in the market.

To the purely financial players, in a way the absolute price levels don’t matter.

To the traditionalists, largely from the trade, alarm bells are ringing.

ETFs came in for a fair amount of discussion. I’m not going to replay my own views – I did that recently enough – but the jury still seems out on whether they can be made to stick in industrial metal markets.

On the one hand, proponents point out that they would enable a greater number of investors to get involved.

Ah yes, argue the nay-sayers, but they will therefore distort the market fundamentals.

I was interested that a couple of producers I spoke to seemed very keen – perhaps that’s an indication that their physical sales are not as robust as they would like?

Mixed views also on the LME/SGX mini-contract tie-up. I get the feeling, though, that the brokerage community is perhaps hardening its view against the proposal, on the grounds that somehow they see it as giving away part of the LME’s franchise.

I find that one slightly odd.

Surely if they really wanted minis to succeed in London, they have had plenty of opportunity to do that already. Maybe a bit like the child who won’t let anyone else play with the ball?

Would you bet against the LME minis picking up themselves between now and the end of the year?

Talking of brokers, incidentally, when I add up all those who gleefully assert that they are regularly exceeding 30% of Select volumes daily, I get to quite a lot more than 100%...

Slightly away from the LME, a number of people talked about rare earths, and potential developments. Seems to be an area where investors are keen, and prospects for realistic projects to raise finance are red-hot.

Best news for me?

It came out a week later, in fact, but we’ll include it here anyway.

The LME has decided to delist the ill-fated plastics contracts, as suggested in this column a few months ago.

Full credit to them for that; they gave the idea a healthy length of time to run, but in the end have made the sensible decision when faced with a product that was going nowhere.

Much better to focus time and attention on things which are successful, and if the numbers of people and their enthusiasm for the business last week is anything to go by, the essential business of the LME is indeed very healthy.

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