‘Where is the copper surplus?’ ask LME brokers as backwardation flares

The backwardation in the London Metal Exchange copper price curve flared further throughout Tuesday January 21, as dominant holders of warrants, tom and cash positions put pressure on shorts.

The backwardation in the London Metal Exchange copper price curve flared out further throughout Tuesday January 21, as dominant holders of warrants, and nearby positions put pressure on shorts.

During the morning, the tom/next copper spread traded in a $9.75 backwardation on Select, after being valued at a back of $4 at the close of trading on Monday, while the cash-to-three-month spread moved into a $50 back in the official session.

The pressure on nearby shorts came even as outright three-month prices dropped, pulling the flagship contract down to $7,280/82 per tonne at the end of the official session, from $7,305/310 on Monday.

The falling prices and tightening spreads reflect the conflicting effects that the surge in concentrates supply and a bottleneck in refined production are having on the physical copper market, sources said.

“The question today is: where is the copper surplus? Everyone is bidding for it and it’s nowhere to be found,” a category I broker told Metal Bulletin.

Nearby copper spreads have been under pressure since the fourth quarter of last year, and the fresh flare-out this week has coincided with lagged data showing two dominant holders of live LME warrants on January 17.

Each party held between 30-<40% of live warrants at the end of last week, while there were even larger holdings in the exchange’s warrant-tom position report, which is the basis for the LME’s lending guidance.

One market participant held warrant-tom positions equal to 50-<80% of live warrants on January 17, while a second held a further 30-<40%, LME data showed.

“It looks like the longs are plural, and the movement in tom/next today clearly suggests shorts have been caught out,” a category I trader told Metal Bulletin.

“This has come about because of a physical tightness, but there hasn’t been too much talk about who, specifically, has been caught short,” he said.

“I’d say it’s more likely to be the CTAs and technical traders, because anyone with their eyes on the physical market would have seen that it was going to get tight,” he added.

Copper stocks in LME-approved warehouses stood at 330,675 tonnes on Tuesday, down a net 3,875 tonnes, while live warrants stood at 143,150 tonnes.

Three-month aluminium prices settled at $1,785.50/86 per tonne, down from $1,812.50/13 a day earlier.

Aluminium stocks in LME-approved warehouses stood at 5,468,900 tonnes, down by a net 7,275 tonnes after withdrawals from ports including Vlissingen, Rotterdam and Detroit.

Three-month lead prices settled at $2,203/04 per tonne, down from $2,211.50/12 a day earlier.

Lead stocks in LME-approved warehouses stood at 209,450 tonnes, up 200 tonnes after a delivery into Rotterdam offset an outflow in Antwerp.

Mark Burton 
Twitter: @mburtonmb 

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