Fresh Turbulence Batters Copper
Prices on the London Metal Exchange (LME) fell some $60 a tonne from Thursday to $2,122, lowest since mid-November. The premium for cash against three-months delivery eased to its narrowest since that time.
Traders said metals were caught up in volatility of their own and not reacting to the turbulence elsewhere in financial markets after US Federal Reserve chairman Alan Greenspans comments about irrational exuberance. They said the metals market was nervous. It is all part of a bigger game - the unravelling of all that has happened with Sumitomo and the knock-on affects of that, one trader said.
Analysts said coppers short-term fundamentals have now turned more negative, after a third successive increase in LME-supervised warehouse stocks, which with the longer-term bearish scenario signals lower prices.
Yesterday, LME stocks rose 6,400 tonnes to 99,875 tonnes, having been at 6-1/4 year lows of 90,050 tonnes late last month.
They are still low, compared with the 275,000 tonnes of September, but the trend is up.
However, the market remains wary, and it is impossible to project the next $100 move in prices, he said.
Since June, when Japans Sumitomo Corp fired its head copper trader Yasuo Hamanaka, alleging he admitted running up losses of $2.6 billion in unauthorised trades, the market has suffered from unpredictable volatile price movements.
At times, fundamentals are swept aside by battles between big players who are unwinding long Sumitomo positions built up during Hamanakas tenure.
After a dull December option expiry earlier this week the pressure on the upside has been visibly relaxed, and concern over late December tightness has lessened as positions are being squared up or rolled forward.
Traders said that the major long position in the market now appears to be concentrated in merchant hands, having been wound down by investment banks. Speculative funds, meanwhile, are on the short side.
Three months prices are now some considerable distance under the $2,313 peak hit in late-November, while the cash/threes backwardation is now at $130, against a recent high of $285.
Some said that the late November price peaks, which were the highest since June, may now prove to be the last upward spike for copper.