Commodities

Trafigura says it and other traders ordered LME copper withdrawals

Credit: REUTERS/Simon Dawson

Trafigura was not the only commodities trader to order withdrawals of copper inventories from the London Metal Exchange (LME), it said on Wednesday, a day after the exchange took action to calm a volatile market amid shortages.

By Eric Onstad

LONDON, Oct 20 (Reuters) - Trafigura was not the only commodities trader to order withdrawals of copper inventories from the London Metal Exchange (LME), it said on Wednesday, a day after the exchange took action to calm a volatile market amid shortages.

The premium of the LME cash copper contract over the benchmark three-month futures CMCU0-3 spiked to a record of over $1,000 a tonne on Monday as available inventories hit the lowest levels in over two decades.

The LME, the world's oldest and largest market for industrial metals, said on Tuesday evening that it was revising rules to increase liquidity and allow short position holders caught up in the tightness to defer delivery.

Neither Trafigura nor the LME directly referred to a Bloomberg article on Tuesday that named the commodities trader as the main driver of large cancellations, or orders to withdraw copper from LME warehouses.

On-warrant LME copper stocks, those not earmarked for delivery, had tumbled by 94% from mid-August to 14,150 tonnes last week, the lowest since at least 1998.

"We have communicated in advance with the LME before cancelling warrants in full transparency, as usual," Trafigura said in a statement. "Trafigura is one of a number of market participants who have taken similar action in recent weeks."

The trader drew down inventories to ship to end users, mainly in Asia and Europe, it added.

The copper premium had fallen to $338 by Tuesday's close, but was still high by historic standards and was likely to spur deliveries into LME warehouses, analysts said.

"We could see deliveries at some pretty unusual locations, warehouses that haven't seen a copper cathode for the best part of a decade," said analyst Oliver Nugent at Citi.

A good deal of copper was stuck in transit, which could also be delivered once it emerges from bottlenecks, he added.

LME copper CMCU3 surged to a five-month peak of $10,452.50 a tonne on Monday, having gained about 15% in around two weeks, largely on worries about low inventories and a global energy crunch. It was down 1.6% at $9,991 on Wednesday.

Higher energy prices and inflation may put pressure on copper in coming months, Nugent said. "This is an uncomfortable rally. A lot of the things that are driving metals prices higher are inherently not good for global growth."

(Additional reporting by Zandi Shabalala; editing by Jason Neely)

((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO; Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))

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