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Trafigura Revealed As Culprit Behind Copper Market Mayhem

Courtesy of ZeroHedge View original post here.

Update (1130ET): It appears the culprit for the chaos in the copper markets has been identified.

Bloomberg reports, citing 'people familiar with the matter' that Trafigura Group was behind a significant proportion of the orders to withdraw copper from London Metal Exchange warehouses.

It’s not unusual for physical traders to withdraw metal from the exchange to ship to their customers, and Trafigura isn’t the only trading house to have taken metal off the exchange in recent months, the people said. And the move comes against a backdrop of very low inventories globally.

Still, total requests to withdraw more than 150,000 tons of copper from LME warehouses in the past two months have all but drained the available stocks on the exchange, and Trafigura represents a significant proportion of those, the people said.

This is not that much of a surprise since during the pandemic, Trafigura emerged as one of the most high-profile bulls in the global copper market, with head trader Kostas Bintas predicting that prices will hit $15,000 in the coming years as the industry witnesses a new supercycle underpinned by booming demand in electric vehicles and renewable energy.

Additionally, Trafigura traded 4.4 million tons of copper last year, one million tons more than its largest rival, Glencore.

*  *  *

The chaotic moves in various energy markets around the world have spread to the metals markets with copper inventories available on the LME plunging to the lowest on record (since 1974), in a dramatic escalation of a squeeze on global supplies that sent spreads spiking and helped drive prices back above $10,000 a ton.

Copper tracked by LME warehouses that’s not already earmarked for withdrawal has plunged 89% this month after a surge in orders for metal from warehouses in Europe.

Source: Bloomberg

As Bloomberg reports, the last time that type of dynamic developed was during a historic squeeze in 2006, when a buying spree early on in China’s industrial boom drained LME on-warrant inventories to a near-record low. LME inventories are now at even lower levels than was the case then, while Chinese inventories also dropped Friday.

“If more metal doesn’t make it into the exchange, then it really is in a difficult position,” Michael Widmer, head of metals research at Bank of America, said by phone.

“Right now the LME is running a physical contract that effectively is not really backed by physical metal.”

And that 'difficult position' just showed up in a huge way in the copper spread as spot/cash contracts on the LME traded at more than a $1,000 premium to those maturing in three months, the widest spread since at least 1994, surging higher in recent days as freely available stock on the London bourse dwindled…

Source: Bloomberg

“The LME notes recent price activity in the copper market. We will continue to closely monitor the situation, and have further options available to ensure continued market orderliness if these are required,” the exchange said in an emailed statement to Bloomberg.

Is another oil-esque delivery debacle here?


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