- Trafigura Group withdrew a significant proportion of Copper that was pulled from London Metal Exchange warehouses, contributing to wild fluctuations in prices, according to people familiar with the matter.
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The drawdown makes the trading house talk of the copper market, helping to drive available stocks to the highest since 1974 and pushing a key spread to the lowest on record. It s also helped to spark outright copper prices higher, with benchmark futures up about 13% since the beginning of the month and near record highs for metals introduced in May.
It s not unusual for physical traders to take metal from the exchange to send to their customers, and Trafigura isn t the only trading house to have taken metal off the exchange in recent months. And the move comes against a backdrop of very low inventories in the world.
If total requests to withdraw more than 150,000 tons of copper from the LME warehouses in the past two months have all but drained the available stocks on the exchange, and Trafigura represents a significant proportion of them, said the people.
The LME responded Tuesday to the dramatic moves in copper by imposing limits on the market and changes to rules governing the market, including by lowering the spreads of an investor. The changes were intended to maintain temporary market orderliness and avoid the development of an undesirable situation, and are made to maintain permanent, it said.
Read: LME Steps In to Tackle Copper Market Chaos With Rare Rule Change?
The exchange took the steps after the spread between copper for immediate delivery and copper for delivery in 3 months blew out this week at more than $1,000 a ton, the highest in records dating back to the 1980 s, according to the LME.
The move in LME stocks shifted market sentiment over the course of last week as traders gathered in London for LME Week, said Citigroup Inc. analyst Max Layton.
The bullish physical sentiment for copper intensified all the weeks amid the sharp decline in LME on-warrant stock levels, he said, referring to metal that s not already earmarked for withdrawal. Prior to this, the physical backdrop to copper had seemed much more benign than the likes of zinc. During the Pandemic, Trafigura has emerged as one of the most high-profile bulls in the global copper market, with head trader Kostas Bintas forecasting that prices will hit $15,000 in the coming years as the industry witnesses a new supercycle underpinned by booming demand for electric vehicles and renewable energy.
Even with macroeconomic headwinds mounting during a global energy crunch, Bintas said earlier this month that rapidly dwindling stocks were undergirding the outlook for prices. So far, the surge in power markets has had a disproportionate impact on supply, while firm demand has added to the strain on global inventories, he said.
Glencore Plc traded 4.4 million tons of copper in the last year, one million tons more than its largest rival Trafigura. After years of intense competition, it overtook Glencore as the top trading player in 2019 and has extended its lead as the latter s volumes have shrunk.
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