Glencore holding dominant copper long position on LME - Traders

Traders on the London Metal Exchange say the commodities trading house is facing off against Chinese participants and speculators, who had taken short futures positions.

Author: By Eric Onstad and Melanie Burton
Posted: Tuesday , 17 Apr 2012

LONDON (Reuters) -

Glencore International is holding a dominant long position in the London copper market, trade sources said on Monday, as tight supply took the premium paid by investors for cash metal over benchmark three-month futures to its highest in 3-1/2 years.

London Metal Exchange (LME) data showed that one entity controlled 50 to 80 percent of combined cash contracts and metal inventories. The exchange did not identify the holder, but traders said it was Glencore.

Glencore, the world's biggest listed commodities trader, declined to comment.

Large holdings of LME stocks can occur unintentionally and are not unusual for big companies with many divisions and with clients that participate in metals markets.

Dealers on the LME said the commodities trading house was facing off against Chinese participants and speculators, who had taken short futures positions.

"It's Glencore behind the April-May squeeze," said an LME floor trader. Two other traders also named Glencore as the party holding a dominant position.

Short-term supply shortfalls have supported cash prices even as three-month benchmark copper has declined on worries about demand from China, which accounts for about 40 percent of global consumption of the metal used in construction, power supply and infrastructure.

"The Chinese are long physical and short on the LME, and that is going to start costing them," said another LME trader.

The premium of cash copper over benchmark three month futures shot up to $75 per tonne, the highest since October 2008, from $55.75 on Friday.

The premium of the April contract over May has raced up to $42 per tonne from $4 over the past two weeks.

GLENCORE BIG IN COPPER

Glencore is a major player in the copper market. When it floated on the market last year, it said it had a 50 percent market share in copper that is available for global trading and 30 percent of copper concentrates.

While the exchange does not identify the holder of the dominant position, its "lending guidance" requires any dominant entity to supply metal at little or no premium to parties with expiring positions.

The backwardation has emerged as LME copper inventories have slid 45 percent since October to the lowest levels since 2009.

Boosting supply tightness is the fact that over half of LME copper stocks are in U.S. warehouses in New Orleans and St. Louis, far away from the main centre of demand in Asia.

The number of warrants that have been cancelled in preparation for removal from warehouses is a quarter of the total, but there are long queues to shift the material from the depots.

"Cancelled warrants are still on the rise, and inventories of stockpiles on warrant against cancelled warrants are at around three days of consumption, and we haven't seen those levels since end of January. So that is also quite significant," said Andrey Kryuchenkov, an analyst at VTB Capital.