Rumors swirl in copper market

Report says mystery party held up to 90 percent of LME copper inventory in December.

January 2, 2014

A late December report from Reuters says an unknown investor has purchased a major stake—at times up to 90 percent—of the copper housed in London Metal Exchange (LME) warehouses.

Reuters reporters Eric Onstad and Josephine Mason say the investor placed “a near billion-dollar bet” on copper in late December, causing some analysts to ask whether the investor wished to cause a market squeeze by holding onto warehouse inventory.

The LME does not disclose the names of inventory buyers and sellers or whether the mystery copper buyer paid cash, had hedging positions or was an actual consumer of copper.

While some commodity analysts have been citing China’s improved economy as a reason for LME copper prices rising 4 percent in December, the Reuters report brings up the question of whether market manipulation is the cause.

In response to inquiries from Reuters, an LME spokesperson said the exchange has no plans to limit the size of such purchases or inventory positions, adding that the LME has “other mechanisms” to fend off market manipulation.

Metals analysts contacted by Reuters predicted continued volatility in the market, as investors with short positions on copper would continue to tout planned new output from mines in Chile as putting a ceiling on the market, while bullish investors will point to increased demand caused by potentially rebounding economies in the United States and Europe.