has returned to the London Metal Exchange (LME) copper market after last
month’s storm, which forced the exchange to step in to protect those
caught with a short position.
LME cash premium, which rocketed to an unprecedented $1,103.50 per tonne prior
to the intervention, was valued at just $15.50 at Tuesday’s close.
cost of an overnight short position roll, which was $125 per tonne before the
LME imposed its lending cap, is currently trading in small contango.
action has been complemented by a gradual rebuild in LME on-warrant copper
stocks, which fell to a multi-year low of just 14,150 tonnes in the run-up to
the October chaos.
collapsing time-spreads suggest much more is on its way with all eyes now on
China, where the country’s copper smelters have openly talked about shipping
large amounts of metal to LME warehouses.
world’s largest buyer turning on the export taps is a rare phenomenon and one
that attests to how tight availability is in the rest of the world.
amount of copper making its way on to LME warrant has so far been underwhelming
given the extreme level of the cash premium last month.
since the middle of October have totalled 51,125 tonnes, split across LME
warehouses in Europe (19,025 tonnes), Asia (18,675) and the United States
to a conspicuous absence of cancellations since the LME’s intervention,
on-warrant stocks have rebuilt to 62,100 tonnes.
headline inventory figure has still been falling as all the metal that was
canceled going into the October squeeze leaves the warehouse system. But
on-warrant stocks are the physical liquidity base underlying LME settlement and
the rebuild has played its part in calming market nerves.
said, the relatively sedate pace of the stocks build doesn’t seem to justify
the way the backwardation structure across the forward curve has imploded over
the last couple of days.
rather, speaks to the expectation that a significant volume of copper is on its
way from China.
on the export taps
is a regular exporter of copper in refined form, although the volumes are
dwarfed by what moves in the opposite direction.
shipments totaled 212,000 tonnes last year, largely reflecting toll-smelting
arrangements, which allow refined metal produced from imported concentrates to
leave the country without paying any export tax.
have been rare occasions when China’s smelters have stepped up exports.
market weakness and a tight LME market in 2016 incentivized 426,000 tonnes of
refined metal out of the country, which was and remains a record annual tally.
more pertinent to the current situation was another extreme LME squeeze in
2012, which saw the China Smelter Purchase Team export copper to deliver
against their short positions. Exports in May of that year were 102,375 tonnes,
still an all-time monthly high.
the same group of smelters threatening to deliver large amounts of metal this
time around but the problem is securing enough shipping capacity to move
significant volumes to the nearest LME warehouses in either Taiwan or South
shipping sector is still experiencing its own turmoil with high freight rates
and log-jammed ports, including in China.
the reasons LME stocks fell so low in the first place is that copper has not
been immune to the transportation snarl up – Fastmarkets, for example, reports
multi-month back-ups in shipments of the metal from Africa.