A mystery buyer has cornered the London copper market, sitting on up to 80 per cent of the physical stockpiles traded on the capital's metal exchange.
The London Metal Exchange did not identify the buyer, who, data showed, controls between 50 to 80 per cent of the cash warrants traded on the bourse. The warrants correspond to the 352,425 tonnes of copper sitting in LME-approved warehouses, meaning that the buyer owns up to 281,940 tonnes of the red metal. At $8,711 per tonne, the hoard could be worth anything from around $1.5bn to $2.5bn.
At 80 per cent of LME's warrants, the buyer would own over half of the copper traded on all major world exchanges, according to one analyst, who said such buying was not out of the ordinary – a view reiterated by the LME itself.
The analyst added that it would be hard to work out the identity of the buyer, as the copper market attracts interest from a variety of institutions, including banks and metals merchants, who would be able to trade in such large quantities.
The LME said it had procedures in place to make sure that the market continues to function in an orderly way, with rules dictating that if a buyer holds in excess of half or more of the warrants, they should be prepared to lend at premium of no more than 0.5 per cent of the cash price for a day. With the buyer's identity remaining hidden from view, speculation focused on two possibilities. Either the mystery trader was buying up warrants in a bid to cash in on the prospect of higher copper prices, or, it was said, someone was getting ready to launch an exchange-traded product backed by physical stockpiles, which would provide investors with exposure to rising prices without worrying about buying and storing any metal.
The latter view sprung from recent market speculation regarding the imminent launch of the first such product. Merging the rumour with the LME data, chatter turned to UK-based ETF Securities, which recently said it was preparing to launch a range of physically backed industrial metal exchange traded commodities. Yesterday, ETF said it could not comment on anything to do with industrial metals.
Copper prices have been rising strongly in recent months amid strong demand from India and China, with some eyeing a supply deficit next year.