Posts tagged 'LME'

An aluminium supernova which the LME never saw coming

Forcing LME warehouse operators to comply with faster aluminium load-out rates was supposed to bring down excessive spot premiums for fabricators and end-users.

The idea very loosely was that if end-users could get their hands on metal, which was otherwise trapped in the inventory system, they would not be beholden to the higher prices charged by producers for the privilege of direct delivery. Everyone would be a winner – yay!

And yet, as FT Alphaville pointed out on a number of occasions, we thought the LME’s solution — by misdiagnosing the problem — would not be successful. If anything we worried the premiums could get worse before they got better, since a lot of the inventory rather than making its way to market would only be shifted into private dark inventory stores instead. Read more

Beware the darkside of the metal market force

Goldman Sachs launched a spirited defence of warehouse queues last week, arguing that they don’t have an unwarranted effect on physical prices because the hoarding is justified by curve dynamics.

The view, in short, is that because the curve is rewarding the market to store, these supplies are not coming at the cost of supply to the market. In fact, in their eyes, the hoards provide a balancing mechanism to what would otherwise be an oversupplied market. Yay for warehouses! They’re just keeping prices balanced! Read more

Boron Group Metals pricing update

Rio Tinto’s problems with its aluminium business are well documented.

But things could have been worse without all that warehousing shenanigans from Goldman et al. Read more

Goldman explains concept of queueing

When a lot of customers want to get their property out of the warehouse at the same time, a line forms…

Although Goldman is ready to swap you if you don’t like queueing in the LME warehouse system. Statement’s here. This is how it ends: Read more

An upcoming dehoarding effect in metals?

An interesting bit of news, by way of the FT’s Jack Farchy and Daniel Schäfer this week:

JPMorgan Chase and Goldman Sachs are seeking to sell their metal warehousing units just three years after their controversial entry to the industry, even as a proposed rule change by the London Metal Exchange is likely to reduce the attractiveness of the business. Read more

FSA approves HKEx takeover of LME

The London Metal Exchange said that the UK’s Financial Services Authority had given approval for its $2.2bn acquisition by Hong Kong Exchanges and Clearing. The transaction is expected to close next week.

But there are still hurdles. First, a court hearing. From the statement by HKExRead more

LME snapped up by Hong Kong Exchanges

A $2.15bn bid for the London Metal Exchange has sealed it for HKex, beating Intercontinental Exchange to end a nine-month bidding war. From the statement:

The board of Hong Kong Exchanges & Clearing Limited (“HKEx”) is pleased to announce that on 15 June 2012, HKEx, HKEx Investment (UK) Limited (“HKEx Investment”) and LME Holdings Limited (“LME Holdings”) entered into a Framework Agreement regarding the terms of a recommended cash offer (the “Offer”) for the entire issued and outstanding ordinary share capital of LME Holdings by HKEx Investment, a direct subsidiary of HKEx International Limited (“HKEx International”) and an indirect wholly-owned subsidiary of HKEx (the “Transaction”). Read more

China is being buried alive in copper

According to Wikipedia, compulsive hoarding is a disorder characterized by the excessive acquisition and inability or unwillingness to discard large quantities of objects that would seemingly qualify as useless or without value.

We’d like to make the case that China is suffering from this disorder and that we’re at the stage where a psychopharmacological intervention needs to be organised by China’s friends and family. If not China’s hoarding tendencies could destroy the world as we know it. Read more

LME concedes over fee amid bid battle

The London Metal Exchange has had to climb down from some plans to charge a controversial trading fee, postponing its roll-out and cancelling it for spread trades, reports Reuters. Bidders for the LME have closely observed the dispute as revising the fee could hit future revenues at their target. The LME’s board will work on narrowing down its list of suitors to a single name through to April, before putting the bid up for shareholder approval, the WSJ says.

Copper price jumps as LME stocks set to fall

Copper for delivery in three months at the LME on Monday rose to $8,082 a tonne, up 6.9 per cent in January so far after suffering a 22 per cent plunge over the course of 2011, reports the FT. Inventories of copper at LME-registered warehouses stood at 354,575 tonnes on Monday, having fallen by 120,000 tonnes since October as falling prices encouraged consumers of the metal – particularly in China, which accounts for 40 per cent of global demand – to restock. Copper for delivery in three months at the LME on Monday rose to $8,082 a tonne, up 6.9 per cent in January so far after suffering a 22 per cent plunge over the course of 2011. Inventories of copper at LME-registered warehouses stood at 354,575 tonnes on Monday, having fallen by 120,000 tonnes since October as falling prices encouraged consumers of the metal – particularly in China, which accounts for 40 per cent of global demand – to restock.


LME to raise trading fees

The London Metal Exchange will raise trading fees for non-members by as much as seven times as it seeks to maximise profitability ahead of a potential takeover, says the FT. The exchange, the global centre for metals trading, expects that its members – mostly banks and brokerages – will pass on the increased cost to their customers. This would raise the cost of trading for the hedge funds, trading houses and metals consumers that are the heaviest users of the contracts. The LME said in a notice to members that it would raise trading fees for non-members to a flat rate of 50p ($0.78) per contract traded from the start of March; up from current fees of 16p for trades in segregated accounts and 7p for trades in non-segregated accounts. Fees for trades between the LME’s 93 members will be unaffected. The 134-year-old exchange announced in September that it had received expressions of interest from more than 10 potential suitors.

Goldman to reap benefits of LME sale

Goldman Sachs is in line for a large windfall from its stake in the London Metal Exchange,after the LME put itself up for sale, according to the FT. Goldman has quadrupled its stake in LME over the past two years. The buying spree has made the bank the LME’s largest shareholder with a stake of 9.5 per cent, potentially worth as much as $150m. LME holders could gain a fifteen-fold payout on their stake from the sale, which could fetch more than $1.6bn.

Goldman set to be LME sale winner

Goldman Sachs has more than quadrupled its stake in the London Metal Exchange in the past two years, making the US investment bank the biggest potential winner from the proposed sale of the 130-year-old exchange. The FT reports Goldman is now the largest shareholder in the LME with a 9.5 per cent stake. LME said last week it had been approached by more than 10 suitors over a sale that shareholders hope will value it at more than £1bn ($1.6bn). That would give the shares a value of about £77.50 each, 15 times the last traded price, putting Goldman’s stake at as much as £95m ($150m). Ownership of the LME is restricted to its 94 members and shares rarely come on the market. The most recent trade in LME shares was the sale of the shareholding of Lehman Brothers’ European arm, which Goldman bought in July, according to people familiar with the situation. Since August 2009 it has raised its stake from 300,000 shares to 1.23m.

LME has already seen a ‘raft of interest’

The London Metal Exchange has been approached by more than 10 suitors and expects to open its books for inspection in early December, Martin Abbott, chief executive of the exchange, told the FT. The LME, which hosts the futures contracts used as global industry benchmarks for base metals from copper to nickel, is seen as the last great prize in a wave of consolidation as exchanges seek to capitalise on booming interest in commodities. Likely bidders include CME Group, the US exchange, SGX, the Singapore exchange and IntercontinentalExchange, a CME rival, the report says, citing people familiar with the matter. LME shareholders are hoping for a valuation of £1bn or more.


Oxymoronic LME stocks

Here’s a chart to ponder over on Wednesday:

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The curious case of un-cancelled warrants

FT Alphaville noted a couple of weeks ago how backlogs at London Metal Exchange (LME) warehouses in Detroit were seeing some market participants have to wait up to 10 months to receive their aluminium.

We also noted that an independent study into the LME’s warehousing network had recommended upping load-out rates, to try and deal with some of these issues. Read more

LME warehouse recommends upping load-out rates

An independent study by the London Metal Exchange into its authorised warehouse networks has advised much harsher recommendations than expected.

Key among them is that warehouses with large stockpiles be required to deliver greater sums of metal out of their inventories than is now the case. Read more

Please wait 10 months for your aluminium. Thank you

There’s never a dull moment in the metals markets these days.

The latest developments come via Metal Bulletin which reports that backlogs at some LME aluminium warehouses are now so large that warrant holders are considering taking legal action just to take delivery of their own stocks. Read more

Some more standard deviations in commodities

Sean Corrigan at Diapason Commodities sends us this chart on Friday:

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Copper, the re-export factor

We’ve already referred to the latest Reuters Metals Insider report on Thursday, but somehow we feel that the following is worth a special mention of its own.

That is, what happens when the government attempts to rein in innovative Chinese financing schemes like those using copper as collateral? Read more

On the scale of hidden copper stocks

An interesting report comes our way from Frank Veneroso of RCM, who has been looking more closely at the scale of the global copper inventory overhang.

He cites the work of Simon Hunt, an independent copper market expert, who has been warning of untold surplus inventory for many years now. Read more

Sucden Financial turns its attention to Delta One

An interesting press release via Mondo Visione on Wednesday (our emphasis):

Sucden Financial has announced that it will be launching a new service geared towards institutions to capture brokerage opportunities in the Delta One and Equity derivatives and finance arena with effect from January 2011. Read more

JPMorgan ‘mystery’ copper trader

JPMorgan was the ‘mystery’ trader behind £1.5bn worth of copper deals last week on the London Metal Exchange, according to the Daily Telegraph. The trade was described in the LME’s daily update as “between 50% and 80%’ of the 350,000 tonnes of copper in reserves. This pushed up the price for immediate delivery of copper last week to $8,700 – its highest since October 2008, at the peak of the financial crisis. A high premium on the spot copper price normally reflects fear of a shortage of the metal, which is in demand across the world. A person close to the situation said JP Morgan had bought the copper contracts, noting the amount was closer to the “lower portion of the range” disclosed by the LME.

Tin poised for record on supply shortfall

Tin prices rose to a two-year high, less than 10 per cent below the metal’s all-time high set in mid-2008, as production problems in Indonesia, the world’s top exporter, continued to tighten the market, the FT reports. The metal, used for soldering in the electronics industry, could hit a record high before the end of the year or early in 2011, analysts and traders said. If the forecast proves accurate, tin would become the first base metal to revisit the all-time highs set in mid-2008. Analysts are also betting that copper prices could set an all-time high in 2011, the FT said.

Surge in London steel futures

Trading in steel futures at the London Metal Exchange surged nearly fourfold in the 2010 first half, marking the first sign of interest among producers, consumers and investors in the nascent steel derivatives market, the FT reports. The LME is vying with New York, Shanghai and Dubai exchanges for dominance in derivatives trading in the $500bn-a-year steel market.

London sees surge in steel futures trading

Trading in steel futures at the London Metal Exchange has started to pick up, with volumes up nearly fourfold in the first half of the year, marking the first sign of interest by producers, consumers and investors on this nascent derivatives market, the FT reports. The LME is battling with rival exchanges in New York, Shanghai and Dubai for dominance in derivatives trading in the $500bn-a-year steel market – one of the world’s largest commodities market by value.

Guest post: Prof Craig Pirrong on the pricing-clearing link in the derivatives market

Prof Pirrong of the University of Houston tackles the complexities of clearing by central counterparties…

Since the late-90s, I’ve emphasized in my academic writing the importance of accurate price information in making clearing efficient-or even possible.  It is therefore encouraging to see this article in the FT make the same point.  It is important to note, though, that although this is an important part of the story, it is not the whole story. Read more

Forget Treasuries, is copper the future for China?

China’s Q1 GDP growth figures came in on Thursday at a quarterly 6.1 per cent – less than the widely forecast 6.3 per cent, reports Reuters, reflecting a further slowdown in the country’s hitherto stellar growth.

But is this only a temporary slip? Could China actually be one step ahead, actively masterminding its future GDP dominance forever? Read more

Rush to safeguard commodities contracts

Commodities traders are rushing their private bilateral contracts into exchanges and clearing houses as they race to reduce their counterparty risk amid a deepening financial crisis. The transfer of the opaque over-the-counter deals comes as observers warn that commodities, where trading has ballooned in the past five years, could be the next market hit by counterparty failures. Martin Abbott, chief executive at the London Metal Exchange, said the crisis was bringing new business into the LME as traders tried to reduce their risk, with turnover 45% higher in September compared with a year ago. The LME, the world’s largest base metals exchange, has extended its forward-dated futures in copper and aluminium to 10 years from five as it tries to capture OTC business. The LME’s move comes as other exchanges push into the OTC clearing business, in part to capitalise on the strong backing that regulators have given to the creation of a central clearing counterparty model for the credit derivative markets.
The aim is to reduce the systemic risks inherent when credit derivatives are negotiated bilaterally between traders by having a clearing house guarantee against default.

Lehman in default

Credit rating agency Fitch has just downgraded Lehman to D, the lowest mark on its scale.

Fitch Ratings-Chicago-15 September 2008: Fitch Ratings has downgraded the long- and short-term Issuer Default Ratings (IDRs) and outstanding debt ratings of Lehman Brothers Holdings Inc, (LBHI), parent of Lehman Brothers Inc and other subsidiaries as follows:

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