Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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

© 2005-2014 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

Free Report - Financial Markets 2014