JP Morgan revealed as mystery trader that bought £1bn-worth of copper on LME

Thanks to a headsup from kind reader 'RB', we get to find out what JP Morgan has been up to in the LME copper ring in this Telegraph report. A quick excerpt:

"......JP Morgan's name had been circulating the market all day as the most likely buyer, especially since it is about to launch a physically-backed "exchange-traded fund" (ETF) in copper imminently.
One metals broker dealing on the LME said: "The story is that they're positioning themselves in front of the ETF. There's been a lot of speculation it's them."
Traders noted that there was no physical shortage of copper in the markets but that fears of a squeeze have persisted ever since a raft of investment banks announced their intention to launch ETFs this autumn."

CONTINUES HERE

Somebody's confident that a whole bunch of copper inventory isn't about to hit the LME warehouses

This looks like a smart, deep-pocketed play. Here's the Reuters version:

SINGAPORE Dec 3 (Reuters) - A single trader is holding up to 80 percent of copper stockpiles at the London Metal Exchange, the Wall Street Journal reported on Friday.
The dominant position holder, who was not identified, owns between 50 percent and 80 percent of the 355,750 tonnes of copper held in LME listed warehouses, the newspaper said, estimating at least half of the holdings at about $1.5 billion.
The exchange first disclosed the large position in its daily inventory holder report on Nov. 23, the newspaper said. CONTINUES HERE

Here's the Daily Telegraph:

Mystery trader captures 80pc of London's copper market

A single trader has gobbled up to four-fifths of the copper traded in London, stockpiling it in warehouses.

The unknown buyer has been building up the dominant position since at least last week, putting a squeeze on the market.

According to the rules of the London Metal Exchange, the trader must lend out copper if it holds between 50pc and 80pc of the total to maintain day-to-day liquidity in the market. The trader is currently lending at a 0.5pc premium to the cash price.

The premium for spot price copper over delivery in three months' time reached $89 in the middle of this week - the highest in two years. CONTINUES

But want for volatile? Yeah, this one could get volatile.

Chart of the day is.....

...LME copper warehouse inventories, five year period.


Today's chart because a certain reader is surely all happy it went under 400k this week. Yeah P, I mean you :-)

Chart of the day is.........

.....LME copper warehouse inventories:

Hateful, aren't I? All you want to do is to ignore things like "reality" and keep enjoying this bull run that WE ALL KNOW WILL NEVER EVER END and here's me prodding at your ribs with the pointed stick of Cu warehouse numbers again.

Elephant? Meet room.

Canary? Meet coalmine.

Charts of the day are....

...those boring copper elephant-in-room fundy thingies again. LME inventories are at a six month high and show no signs of stopping.

Here's the context

And here's the price chart

The only way that copper can perform the way it's been performing is as a hedge against the dollar. And copper isn't an asset class, folks! Never has been, never will be (unless this time is different, of course) and so the equal/opposite type reaction you see from copper can only be temporary. Put simply copper isn't gold, so anyone that puts the word "copper" next to the phrase "safe haven" in the same sentence should immediately be dropped from your list of advisors. Cos sooner or later that person is heading for a fall...happens every time.

UPDATE: Thursday's LME inventory number is just out, up 4,800MT to 402,125MT. But don't worry, it's just fundies. Party on Garth.

Copper news

LME Week is here again (my how time flies) and here, from some RBS flunkey, is the best quote from the copper suits I've seen so far in their week of spotlight (in bold).

"The world economy is by no means out of the woods, but in our view the theme during LME Week will be the prospect of demand recovery in 2010," Royal Bank of Scotland said in a note.

"Yet we would still urge producers to be very cautious about embarking on price induced as opposed to demand induced reactivation."

This can be put into real English thusly: "There's an awful lot of idle supply waiting to jump back in, but if it does copper will sink so don't screw the roost and start ramping back up, pleeeeeeease.... cos I want my bonus".

Demand, eh? Supply, he said? My, the oldskool words are back in fashion! So how is that demand coming along (inquiring minds etc)? According to some flowery named dude over at Nexans:

"If you look at the physical market I see pretty depressed prices over the coming months. Prices are likely to fall this year and part of next year. It really depends on when growth will pick up."

The same note then goes on to point out an inconvenient truth or two, such as:

At the end of May, 21% of all copper in LME warehouses was booked for delivery. Today, the proportion is 2.6%.

With LME copper inventories now at 347,375MT and climbing, it really doesn't look very good from the underlying demand.


As the JP Morgan flunkey puts it (quoted in the FT):

Michael Jansen, of JPMorgan, said that he expected increases in metals stocks would be a "significant hurdle" to further price gains.

DYODD, dude.

Am I still allowed to be bearish on copper?

Ok, so Olympic Dam looks like taking 50KMT off the market in the near future, but where does it rate as an influence compared to end user demand, or the dollar?

Here's the LME inventory chart (6 month):


Here's the same period price chart

Here's the spooky Reuters report that tells you about the nerves on the demand side

Here's the USD chart (hey look, it held 76)

Copper

Here's the latest LME inventory number (which shot up over 340,000MT late last week):

Here's the five year inventory:
Here's the spot price over the same period.


Is the rise in inventories and the reversal of copper prices related?

Is the Pope Catholic?

Do bears tend to defecate in woodland areas?

Chart of the day is.........

....LME inventories of copper...just for a change, eh?

Here's the five year chart for context.

It comes with this quote from Reuters this morning:

"We're bound to recover at some point but for the next six to 12 months anything can happen. Demand isn't great and there is excess material out there," said an LME-based trader.

Translation: "WTFDIK? But hey, buy anyway..what could possibly go wrong, suckaz?

Copper Inventories

Yeah I know, it's like one of those itches you can't stop scratching. Here's the latest LME inventory (Monday 14th Sept number, out a few minutes ago).....

......and 300,000 is getting left behind fast.

"Err.....like thanks Doctor.....it was a great party dude.....but like I gotta run now, y'know.....don't wanna stay too long....."

LME copper inventories about to break through 300,000MT

Here's the chart as stands today, with the latest LME number hot off the press:

Add to this the first inventory climb in Shanghai for nine days (up 1.7% to 19,656MT) and the rise over at COMEX, up 228 short tons to 53,209 tons. For sure, these smaller warehouses aren't as important as big daddy LME but the trend is clear in all places, this despite lower than expected recent copper production in the world's two biggest export countries, Chile and Peru.

DYODD, dude.

UPDATE: Nervous copper longs send anonymous messages to Otto, hiding their fear and loathing of his superior economics skills behind mockery.

Copper levels up a bit lately.. STOP PRESS! LOL Otto, come on.. it was at 550,000 tonnes this February and now it is at 300,000.. it's a natural swing. I expect the spot to retrace to around 2.40-2.50 before another run up. Didn't you say it was ready for a pullback around 2-2.20? That was over 30% ago. We know you are bearish on copper but you were plain wrong. Let it go.

Chart of the day is...

...LME warehouse copper, now over 294,000MT

Just keeps on creeping up, dudettes and dudes.

UPDATE: Bloomberg wins the "Headline of the Day" award with this one:

Copper Stockpiled by China’s Pig Farmers May Be Sold (Update2)

x

Still obsessing on copper.....

...which is sad and wonky I know. Here are two charts that say to me "does not compute". This one shows the latest LME warehouse number, as up, up, up she goes.

This one shows the futures curve at the LME, with traders unafraid to be net long.

The only logical solution to this (as far as my limited neurons carry me, anyway) is that copper is a direct "weak dollar" play right now and screw the fundamentals. But the thing is, fundies will out in the end; they always do. If you're still bullish here that's ok but be careful and be specially ware of those bulls with very loud mouths and "100% certain" opinions on commodities at the moment. As far as I can see the complex is slave to the whims of the monetary markets, not who is or is not using metals. If the dollar decides to reverse and appreciate away from its current downmove (it wouldn't take much in the way of news in this skittish market) people will suddenly pay a lot of attention to that LME warehouse number as it continues its relentless limb.

All imho, dyodd, dude.

Those LME warehouse copper stocks again

The mini-trend continues, as six of the last seven trading days have now added stocks to the LME warehouses.

That 14,825MT added to the warehouses, folks. Now it's important to keep this still relatively small move in context, so here's the five year chart to keep our heads screwed on and understand the difference between a small move and a game-changer such as the one we saw last year....

...but there's little doubt now that the trend of ever-downwards movement we've seen in 2009 regarding stocks is now broken. And by way of a wrap-up, here's a quick look at LME stocks of the other major traded base metals via their six month charts:

Zinc

Lead

Nickel

Alu

A copper warehouse thought

Now it might not be much of a move so far in absolute terms...

...but copper back to 266,425MT in LME warehouses hasn't been seen since June 8th...when copper closed at U$2.14/lb. Stocks have also moved up four days out of the last five. DYODD, dude.

LME warehouse copper

Here's the chart:

The downdraft in Copper held at LME warehouses continues unabated and stocks are now down to 348KMT. The most recent part of the move is apparently due to cancelled deliveries, which is what happens when a copper producer agrees to send its wares to an LME bonded warehouse but then backs out of the agreement (perfectly legal, don't worry) before the alloted delivery date. This is usually understood as a copper producer preferring to send the metal directly to the buyer instead of to the middleman waystation...but it ain't necessarily so, Joe. Producers are also fond of higher prices (duh), so if they think the market will react bullishly to a lack of LME stockpile they might just decide to pile it up in their own backyard and not where the LME counts the metal. That's just one scenario of many.

But with that said Occam's Razor states that lower LME stocks = higher copper prices, at least in the short term. And with copper in backwardization (see that little chart from yesterday) there's little doubt that a short term squeeze is on the metal, no matter if it's actually being used or not.

Bottom line: I'm still bearish but aware of the bull case. I can't escape my own AdamSmithian baseline, y'see. Let the hedge funds and Chinese stockpilers have their place in the sun.

copper thoughts

I've been musing on these two longview copper charts over the weekend. The first one is the 10 year copper price chart (in U$ per MT), the second one is the 10 year LME warehouse stocks chart:

It's boring being a copper bear (in the short term) and watching the price move from $1.75/lb to $1.95/lb in quicktime. So when markets go against my forecasts, I'm always interested in finding out where my mistakes were made.

My basic in-a-nutshell bear call when the price stood at $1.75/lb or so was "copper won't go up because the price move so far has been monetary in nature and not driven by demand." I can still happily stick with that call, even though China imported a large amount of copper in February. This is because China is clearly stockpiling the metal and it's not satisfying final end-user demand.

However, it's clearly not the whole story. My best guess is that large funds have moved back into copper and are buying on speculation. That strikes me as my own bad excuse for calling the move badly, though....it's so darned easy to "blame the hedgies/PTB/WallSt crooks" etc for any market move that goes against you, isn't it?

Whatever it is, although I'm not comfortable with my mistake I have to stick by my call for the time being as fundamental analysis (my baseline) cannot see any reason for higher copper prices going forward. But be clear, that's more my personal analytical weakness showing than any particular table-banging. Any comments either left below or via mail from people with a view on copper very appreciated.

DYODD

UPDATE: Heather Walsh is one of the better reporters at Bloomie. She filed a report from the CRU conference today that goes under the title "Freeport Says Rally Unlikely To Spark Investment Jump". The contents from no lesser name than FCX CEO Adkerson back up my own position.

UPDATE 2: Tyler Durden at Zero Hedge throws another dos centavos into the debate. I agree here, too. What is it about Sundays and musings on copper, anyway?

Charts of the day are..........

......... the five year copper charts, price and LME warehouse. This post is by way of reply to a mail yesterday.


Cut the crap, stop looking wistfully over to Shanghai for any sign of an uptick and keep your eyes on inventories.

It's extremely simple, which is always a good thing. If inventories stay like this, so does copper. Any commentary you hear about a rebound in copper that does not take the above chart into account is just another case of uninformed fool grasping at straws.

Charts of the day are...........

.........the LME futures curves for Copper, Zinc, Lead and Nickel.

Oh these charts are so much fun.

........and are a big difference to the story of just just a few weeks ago...........

.....when the annualized discount was running at 6% to 8%.........

....because now you can get your lump of metal significantly cheaper at cash spot than for 2011 delivery.

Semi OT: There are lots of things I like about inflation, because if you understand how it works it can work for you and not against you. Perhaps the nicest thing about inflation is that due to its very chequered history in fighting the beast over the last four decades, Latin America understands it better than virtually any other place in the world. Compared to the knowledge pool I've been lucky enough to tap into on the subject, you guys up there are greenhorns.

I'm really beginning to look forward to 2009.

I am watching spot copper

"When the facts change I change my mind. What do you do, sir?"
J.M Keynes

To make this one clear:

1) Large positions taken in copper stocks yesterday.

2) They'll be held as long as copper does not break the long term trend (chart in this previous post)

3) They'll all be bailed if copper breaks the trend to the downside (i.e. below $3.10)

4) Right now copper is holding at U$3.13, having touched $3.16 in early LME trading (and it hurts your quality sleeptime to be online for the London metals open when you live in LatAm).

I firmly believe we are at a bottom for copper and for metals (as outlined in the post yesterday) and put $ where mouth is. However I alo firmly believe that I can be dead wrong about things and I'm not afraid of that. So if that trendline breaks I'm outta here.

UPDATE: A strict technical trader would have sold that downspike to 3.085..i didn't. It was obviously a reachdown spike. The confirmation will make me puke, though.

UPDATE 2: Bot GLD. In for a penny.......