Copper ‘Tightness’ Spells Volatile Year-End, Standard Bank Says

Copper may be set for a volatile end of the year on the London Metal Exchange because of short-term tightness in the market, Standard Bank Plc said.

Immediate delivery copper’s premium over the benchmark three-month delivery on the LME climbed to the highest level in more than two years as data showed one unidentified party owned most of the stockpiles monitored by the bourse.

The dominant holding has created an “anomalous” and “unsustainable” market tightness focused on December, Leon Westgate, a London-based analyst at Standard Bank, said today in a report. “That tightness is deterring the market from aggressively shorting the market and is therefore helping to support outright prices,” Westgate said.

The immediate-delivery metal’s premium jumped 29 percent to $74 a metric ton today. Prices moved on Nov. 8 to a so-called backwardation, when nearby copper trades above longer-dated contracts, potentially indicating concern about near-term supply.

The unidentified party held between 50 percent and 79 percent of LME copper stockpiles from Nov. 22 through at least Nov. 29, the latest exchange data show. Inventories shrank to 354,850 tons today, the lowest level since October 2009, after falling for a ninth month in November. The three-month price rose to the highest in more than two weeks in London, gaining as much as 2.6 percent to $8,580 a ton, as factory output expanded in China, the world’s biggest consumer.

“The copper market is looking constructive,” Westgate said, adding “we also remain nervous as to how the nearby tightness resolves itself, and whether the tightness extends into January and February or whether it finally results in material being delivered into warehouse.”

To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net,

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net.

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