Overnight the WSJ reported that one firm has been holding over 50% of LME copper stocks and has been holding up to 90% on some occasions.
While the LME doesn’t give out stock holding information, traders have pointed point the finger at Red Kite Group as the likely candidates. Red Kite Group is a London hedge fund and is run by two former members of collapsed Metallgesellschaft AG. The holdings were worth around $535m at current prices.
Their supposed holdings in copper have risen while stocks at LME warehouses have been shrinking. Stocks at warehouses dropped to 160k tons in June from over 360k at the start of the year yet the price has fallen in line with demand weakness and worries over Chinese growth. Stocks are said to be down as production lags meaning users are eating into warehouse holdings.
The LME doesn’t limit position sizes and has procedures in place to limit any squeeze in supplies, although that might not stop a big squeeze in prices if stocks levels fall further or we get a big shock.
The price of copper has continued to drift lower from the big 2009/2011 rally over the GFC and looks to be stabilising around the 50 fib of that move.
Copper monthly chart 27 10 2014
It’s not unheard of in commodity markets to see entities taking on large positions and given the people involved it’s probably a sign that we’ll get a decent bounce. While I don’t suggest we all pile in on the back of this story, the levels might be worth watching if you like a trade in copper.
From an ex-LME guy I wouldn’t want to be the one who had to manually input all the warrants that turned up at the office from these positions, though I expect it’s a more automated process these days than banging a keyboard for hours like I used to
The full story from the WSJ is here (gated)
