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Are they betting on the economy truly rebounding?
How weird.
JP Morgan revealed as mystery trader that bought £1bn-worth of copper on LME
The American investment bank JP Morgan is the mystery trader that grabbed more than half the copper on the London Metal Exchange, The Daily Telegraph has learned.
The trade was described in the LME's daily update as 'between 50pc and 80pc' of the 350,000 tonnes of copper in reserves
By Louise Armitstead and Rowena Mason 8:30AM GMT 04 Dec 2010 98 Comments
The $1.5bn (£1bn) trade was described in the LME's daily update as "between 50pc and 80pc" of the 350,000 tonnes in reserves. This pushed up the price for the immediate delivery of copper to $8,700 – its highest level since the financial crisis in October 2008.
A high premium on the spot copper price normally reflects fear of a shortage of the metal, which is in hot demand across the world as a vital component in a mass of products from electrical gadgets to wiring.
A source close to the situation said that JP Morgan had bought the copper contracts, adding that amount is closer to the "lower portion of the range" disclosed by the LME.
Traders said 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.
Last month metal traders wrote to the Financial Services Authority (FSA) claiming that licensing the funds, which are also likely to be launched by BlackRock, Goldman Sachs and Deutsche Bank, may amount to "approving the next financial bubble".
It is estimated that if the copper funds are fully subscribed they would be looking to buy more than half the total stocks in LME warehouses.
Traders' concerns are based on the ETF model that will require the investments to be backed by physical metals, such as copper, lead, aluminium and nickel, rather than paper assets offered by futures contracts.
Daniel Major, a metals analyst at RBS, said: "There isn't a huge buffer available for the market. The supply situation can quite easily tighten in copper."
The LME moved to quash claims that a rogue speculator was attempting to corner the copper market.
Diarmuid O'Hegarty, head of compliance, said: "The LME has noted recent comments about the current cir stances in the copper market. Such cir stances are not unusual and the exchange is exercising its well established procedures for maintaining an orderly market."
He added that large trades were not a cause for concern because the market's rules dictate that holders have to lend out a proportion of their stock to ensure a smooth supply of the metal.
Fundamental supply pressures have also been pushing up the copper market. Rio Tinto, the mining giant, warned last week that next year's copper production would be lower than expectations. And a strike at an Xstrata mine in Chile, the third largest in the world, has been going on for longer than predicted.
JP Morgan declined to comment.
Are they betting on the economy truly rebounding?
How weird.
no, betting on a critical, expensive commodity becoming more expensive, restricted supply in face of constant/increasing demand.
ehhhhh which would only happen with an economic rebound
Particularly in the construction aspect.
Weird move. Gotta research more about this.
Matter of course. Physical reserves will be mandatory for ETF trading. Ain't that coming up?
copper bubble here we come
Well, oil is nearly $90 (it was $35 when oilmen moved into the WH in 2001) in middle of a historic depression in industrial and other countries.
Supply/demand argument, just another joke, as it was when oil hit $140/barrel.
Commodity prices is all about traders gaming the system, and in secret.
http://en.wikipedia.org/wiki/File:Co...istory_USD.png
http://upload.wikimedia.org/wikipedi..._1861_2007.svg
The big trading desks are formidable indeed, but I doubt the de-linkage from market fundamentals is quite so complete as you are suggesting.
As usual, you take a completely uncontroversial observation and ruin its persuasiveness by grotesque exaggeration. You can't help it, can you?
Explain to us how oil was $140/barrel with the world in a recession, heading for a depression and liquidity freeze a couple months later, and the Saudis saying they had plenty of oil to sell that wasn't selling.
I thought speculation had something to do with it.
Saying so was controversial at the time. A couple of years on, it is more hackneyed.
"was controversial at the time"
Thank you, I was saying it then. Welcome to my bandwagon
that's a great picture of the ST academic debating club
shouldnt we be moving frmo coppper to fibre optic?
fibre's great for data, no so great for power transmission.
make me an inductor or transformer with fibre.
Copper is also a currency hedge. With the Dollar and the Euro sucking copper is a basic hedge play since India/China/Malasia are still kicking ass. They don't HAVE to buy gold/silver but they need copper.
ALL that glisters is not gold, as the old saying rightly affirms—because at the moment, copper is shining too. Last week the price of gold surged past $1,400 an ounce, but for pure performance copper is the clear recent winner. Since the middle of the year the price of gold has risen by a decent 13%; copper, on the other hand, has soared by 35%. Stocks of copper at the London Metal Exchange (LME) are down to 8 days of global consumption; add in holdings at Shanghai’s exchange and producer stocks and it creeps up to close to a fortnight.
On December 3rd rumours circulated that JPMorgan bought up warrants for more than 50% of the LME’s copper stocks, probably in readiness to launch a physically backed exchange-traded fund (ETF), a popular investment vehicle for gold that is now set to spread to a wide variety of base metals. The race to launch copper ETFs is swiftest because it is the metal in shortest supply. China’s mammoth demand for copper—it sucks up 40% of world supplies—has not been matched by fresh supplies. New copper deposits are thin on the ground. As older mines get deeper and the choicest parts of deposits become exhausted, ore grades have declined. In all, there has been very little net growth in supplies for several years.
Plumbers are steadily switching from copper pipes to plastic ones; and the Chinese have found a way of subs uting the metal with cheaper aluminium in air-conditioning units. Despite this, demand for other uses is still set to outstrip supply, and prices to rise, in the next couple of years or so. This makes copper alluring to the investor—hence the slew of ETFs backed by physical copper that are set to be launched. BlackRock, Deutsche Bank and ETF Securities hope to join JPMorgan in offering investors exposure to physical copper. This too is sure to push prices higher as the funds take copper off the market at a time of tight supply. If regulators can be persuaded to set aside their objections and allow these ETFs to trade, copper, currently trading at over $8,750 a tonne could be pushed up beyond $10,000 according to RBS, a bank.
Other are not so sure. Investors, who can already invest in copper through the futures market, may not want the reassurance of holding physical supplies. Unlike gold it is far too bulky to be of use for slipping a couple of bars into a case and making a dash for the border. Its bulkiness means it costs more to store. But even if investors aren’t keen on copper ETFs the laws of supply and demand are set to push prices higher anyway. For now, that is. Those same laws have started to prompt investment in developing new copper mines and expanding existing ones. From 2012, as this extra supply comes on to the market, the metal may begin to lose its lustre.
http://www.economist.com/blogs/newsbook/2010/12/copper
One problem with that thought. It may bring the immediate price of copper up, but they are stuck holding it if they want the price to stay up. I see this as a potential loss rather than gain for them. With a rise in copper prices, more mining operations may start up, reducing the supply/demand pricing back to nominal levels. Now when they unload, it will likely be at a loss as the market is seeing an excess of product vs. demand.
Good investors don't put all their eggs in one basket, or buy such a high amount of commodities unless the nature commodity price will rise on it's own.
Supply and demand rules.
And who will lose when it bursts?
Can anyone say JP Morgan?
I wonder how high it will get? I've got a few thousand pounds of #2 copper scrap I have been saving...
No kidding.
Why would anyone want to have such a large supply of copper as assets? I wonder if they know of a new technology requiring a large amount of copper. That's the only thing I can fathom making this a profitable deal.
How do the ratings work? Never learned, but I have been saving 1982 and older pennies, since they are worth more than a penny.
Uhhh...you know how a wind generator works?
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