Mercuria’s copper grab from LME Asia intensifies supply angst
A flag with the logo of Mercuria commodity trading house is pictured in Geneva, Switzerland, October 11, 2016. REUTERS/Denis Balibouse
LONDON, Dec 4 : Commodity trader Mercuria has given notice of its plans to take significant amounts of copper from London Metal Exchange warehouses in Asia, four sources familiar with the matter said, as prices rise on expectations of short supplies.
Anticipated shortages next year partly due to mine supply disruptions including accidents in Indonesia and Chile and accelerating demand growth pushed LME copper prices to a record high of $11,540 a metric ton on Wednesday.
Swiss-based Mercuria cancelled or earmarked for delivery more than 40,000 tons of copper in LME storage facilities in South Korea and Taiwan on December 2, according to sources familiar with the matter. At current prices the value of the copper would be $460 million.
Mercuria declined to comment.
Historically low inventories of copper used in the power and construction industries stored in LME-approved warehouses have contributed to a price surge in recent months.
Much of the copper leaving the LME system has gone to the United States where prices are also elevated because even though copper was given an exemption from import tariffs that came into force on August 1, levies remain under review.
Overall, cancelled copper warrants - title documents conferring ownership - on December 2 amounted to 56,875 tons or 35 per cent of total LME stocks.
Mercuria's move helped boost the premium or backwardation for the cash copper contract over the three-month forward price.
The premium, on an upward path since November, hit $88 a ton on Wednesday, the highest since October 13. This compares with a discount or contango around $35 on November 19. The premium was last around $38 a ton.
Traders expect to see even higher premiums for the cash contract as settlement date on December 17 approaches, when companies with short positions will need to find copper to deliver against their contracts or roll them forward - known as a short squeeze.
Industry sources say cancellations are more common in a contango market, where prices of longer-dated contracts are higher than those for nearby contracts. Cancelling warrants when the market is backwardated is unusual as the premium would typically incentivise deliveries to the LME.
