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LME Copper Premium Soars as Firm Dominates Stockpiles

The copper premium for immediate-delivery on the London Metal Exchange climbed to the highest level in more than two years as data showed one unidentified company owned most of the stockpiles monitored by the bourse.

A company held between 50 percent and 79 percent of LME copper stockpiles from Nov. 22 through to Nov. 29, the latest exchange data show. The cash contract advanced to a premium of $74 a metric ton over the benchmark three-month delivery today, the highest level since October 2008, signaling shrinking supply in nearby futures.

“It could be an investor holding a large position for financial gain, or it could well be material that has been stockpiled in readiness for a launch of an exchange-traded fund,” Alex Heath, head of industrial-metals trading at Royal Bank of Canada Europe Ltd., said by phone from London today.

JPMorgan Chase & Co, BlackRock Inc. and ETF Securities Ltd. said in October they are preparing to introduce exchange-traded funds backed by copper, providing investors access to the metal in the form of an equity-like product.

BlackRock is registering shares equal to 121,200 tons, the New York-based company said in an Oct. 26 filing. The firm and ETF Securities said LME warrants, or documents showing ownership of stockpiles, can be used instead of physical metal.

Dwindling Supply

Inventories of copper, used in everything from laptops to jetliners, shrank this year as demand recovered, pushing prices to a record $8,966 a ton on Nov. 11. Global demand will outstrip production by 250,000 tons next year, the first shortage since 2007, according to Royal Bank of Scotland Group Plc commodity analysts led by Nick Moore.

Stockpiles monitored by the exchange declined 29 percent this year to 354,850 tons, the lowest level since October 2009. Canceled warrants, or the amount booked for delivery out of the warehouses, rose to 31,975 tons from 2,625 tons at the beginning of this year, leaving deliverable inventories of 322,875 tons. In October 2008, when the cash premium was about the current level, deliverable stockpiles were below 230,000 tons.

“Given the current stockpile level, the market is anomalously tight,” Leon Westgate, an analyst at Standard Bank Plc, said by phone from London. That was deterring traders from taking bearish bets, he said. A situation where nearby contracts are at a premium to more distant ones is known as backwardation.

Exchange Rules

“Someone appears to have been trying to squeeze the market,” Hwang Il Doo, a senior trader at Korea Exchange Bank Futures Co. in Seoul, said today by phone. “This may help push the three-month price higher.”

Backwardation traditionally attracts more inventories into the LME warehouses as traders want to benefit from the cash premium. “It’s not going to happen this time, as there’s not much metal around,” said Heath.

Under LME rules, a firm holding 50 percent to 79 percent of the deliverable stockpiles has to lend the metal to buyers at no more than 0.5 percent of the cash price for a day. Liz Milan, managing director for LME Asia in Singapore, declined to comment.

The borrowing fee for next-day delivery, the so-called tom-next spread, was at a discount of 50 cents per ton per day at yesterday’s close, unchanged for the past three trading days. An increase in the fee would indicate tightening supply.

Nickel, Aluminum

One unidentified company also held between 40 percent and 49 percent of nickel stockpiles as of Nov. 29, and another had 80 percent to 89 percent of aluminum alloy inventories, LME data show. Stockpiles of nickel total 131,802 tons and of aluminum alloy 72,220 tons, according to the exchange.

Last year, an unidentified firm held more than 90 percent of tin inventories in LME warehouses during the second half of the year, causing the cash price to trade as high as $730 a ton over the benchmark three-month contract in September.

The three-month copper price added $134, or 1.6 percent, to $8,494.50 a ton at 11:13 a.m. London time today, taking this year’s advance to 15 percent.

New York copper for January delivery traded at $3.8755 a pound today, about the same as the most-active March contract at $3.8780. Near-dated contracts were mostly at a discount to more distant ones on the Shanghai Futures Exchange.

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