Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Why Commodities Traders Are Hoarding Copper

Commodities / Copper Apr 23, 2013 - 01:56 PM GMT

By: Money_Morning

Commodities

Tony Daltorio writes: The only thing that investors have heard recently about the copper market is that there is vast oversupply ahead as evidenced by a buildup in copper warehouse inventories globally.

Inventories at LME (London Metals Exchange) warehouses have risen in excess of 190% since October alone. Inventories are now at levels not seen since 2003 at more than 590,000 tons.


LME inventories are closely watched by traders and economists alike as a key indicator of global economic strength and activity. Normally, such rising levels of copper in warehouses would be a flashing red light warning about economic weakness ahead globally.

According to the Commodity Futures Trading Commission (CFTC), traders have jumped on this inventory number and have accumulated the highest level of net short positions on copper in over six months.
What's interesting about the 10-year high in LME warehouse stores is that there are two firms holding most of the copper supply.

The two commodities trading companies at the center of the current inventory controversy are among the world's biggest: Glencore International PLC and Trafigura Beheer BV.

They're offering incentives of more than $100 a ton above the current market price of copper for deliveries of copper to warehouses they control.

This attempt to control much of the world's copper supplies has begun to raise howls of protests from both producers and consumers of the metal.

"This is the old warehouse play," Mark Woehnker, president of AmRod Corp., told The Wall Street Journal. "It's a very disconcerting development."

Profiting from the "Warehouse Play" in Copper
Glencore's subsidiary Pacorini has warehouses in New Orleans and Johor, Malaysia while Trafigura's subsidiary North European Marine Services has warehouses in Antwerp, Netherlands. These three locations now hold over 70% of total LME copper inventories.

By holding copper stocks, these companies are making a double profit play on copper.

"Basically they're hovering up any surplus at the moment and earning rent," an analyst who declined to be named told Reuters. "Then when the market hopefully tightens up later in the year, they'll benefit from the premium as well."

The CEO of Chile's Codelco (the world's largest copper producer), Thomas Keller, told Jack Farchy of the Financial Times that such tactics distort the market and that the situation was "prehistoric."

Industrial consumers are also upset with the tactics of Glencore and Trafigura. The worry is that the massive amount of copper tied up in warehouse inventories will not be available for immediate delivery to industrial users.

Copper buyers are already saying that they have been forced to pay sizable fees in order to obtain physical copper because so much of the metal is being diverted to warehouses controlled by these two firms.

"It is already affecting the market," Liu Jiang, a purchasing manager at a copper cable maker in China, told The Wall Street Journal. "The lockup in those three warehouses is reducing copper supply available to the market, and because it's a peak season for copper cable production in China, we're definitely going to be affected."

According to The Journal, fees to get immediate delivery of copper in the U.S. are at a 6-month high of $132 a ton. In Europe, the fees are at a 4-month high of $85 a ton.

The industry is also concerned that if the global economy truly picks up in speed, the inventory situation could create an artificial shortage in copper and drive up prices unnecessarily.

This is becoming more and more like the situation in the aluminum and zinc markets. Users in these markets are being forced to pay high fees to access the physical metal, despite a global oversupply. The fees often offset the benefit of lower prices for the metals.

As Glencore and Trafigura are well aware, demand for copper may pick up later in 2013 as China restocks. Copper exports from China smelters have stopped and inventories in Shanghai are dropping. China is still using lots of copper as it builds out its national power grid.

Leon Westgate at Standard Bank in London told Reuters "that any restocking event, when it emerges, will tighten up the market more quickly than many anticipate."

Translation: rapidly rising prices on any increase in demand for copper.

Investors can tag along with Glencore and Trafigura by purchasing copper exchange traded funds.

At the moment, with trading not yet started on physical copper ETFS, the best bet is to go with an ETF based on copper futures. One such ETF is the United States Copper Index Fund (NYSEArca: CPER). It is currently invested in copper futures contracts for July 2013, September 2013 and December 2013.

Source :http://moneymorning.com/2013/04/22/these-commodities-traders-are-hoarding-copper-for-the-ultimate-profit-play/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules