What's behind the strange moves in copper?
Mar 19, 2010
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Something strange is going on in the copper market, says John Dizard in the FT. Over the past few weeks, there has been a sharp jump in cancelled copper warrants. Investors cancel warrants because they want to take metal out of a warehouse. So a big rise in cancellations points to an increase in physical demand, and thus "supports metal prices", says Commerzbank.
Yet inventories in warehouses monitored by the London Metals Exchange are still close to their recent six-and-a-half-year high. Stockpiles in Shanghai warehouses are only "marginally" below their record high. So what's going on? It may be just a case of commodity trading houses and investors manipulating the market in order to keep the bull story going and ditching some copper at high prices, says Dizard. Those wanting to offload some of the metal "might cancel the odd warrant" and point to the supposed demand increase.
There's actually no need to remove the copper from a warehouse, provided the exchange is told it's not for sale on the public market. Private buyers could still take delivery, however. This has happened before: witness the fake nickel shortage in 2006. In any case, "there is a price decline coming soon". With China, the key consumer, now tightening, demand is set to slide. Expect a "significant" metals correction, says Commerzbank.
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