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half stock in LME warehouses

While copper demand growth has been fairly robust, copper prices have been under pressure this year in anticipation of a swing into surplus after five years of deficits as a slew of new mines open through 2016.

These worries, however, don’t seem to have made a long-lasting dent in the industrial metal, often taken as a proxy for traders views on global growth.

Copper prices have mostly stayed above the psychologically important $3 per pound-level and The Wall Street Journal (WSJ) might have found the reason for that. On Sunday it published that, “a single buyer has snapped up more than half the copper held in London Metal Exchange warehouses.”

According to the report, such firm is London-based hedge fund Red Kite, but a position of this size is remarkably large in the context, not only of the LME, but overall global copper markets in a slowing economic environment.

“There’s no reason for anyone to be holding 70% of the stocks of the commodity,” Jessica Fung, head of Commodities Metals at BMO Capital Markets told the WSJ.

That would be worth around $534-$854 million based on prices of $6,675 per tonne.
However, LME data shows that there is a dominant holder of the LME's copper stocks, accounting for between 50% to 80% of total metal holdings. That would be worth around $534-$854 million based on prices of $6,675 per tonne.

While banks often hold large quantities of metal in LME warehouses, often on behalf of clients, it is unusual for such amounts to be owned by hedge funds.

The LME—which does not have limits on how much of a metal any single buyer can own—said that its “lending guidance” system “is the most effective way to manage pressure arising from dominant positions in our market,” by forcing such a buyer to lend a metal for short periods.

Total LME copper stocks are currently at 159,550 tonnes.

Prices ticked higher last week in response to positive economic news from China, the world’s biggest consumer of the metal.

 

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