SPOTLIGHT: Carry trades and queues a challenge for LME brokers’ physical business

Apr 04, 2012 | 04:03 AM |

London Metal Exchange brokers have done less business with the physical industry using warehouse stock since the start of the year, Metal Bulletin understands. The marked decline in physical business volumes has come as larger financing deals and longer queues to withdraw metal from LME stores have further crimped the availability of material for which physical users of the exchange are willing to pay a premium. There are virtually no “premium” warrants available on free float in LME stock, and inter-dealer warrant trading has become less liquid because brokers have fewer premium warrants to trade, or know that any premium brands they are still holding on their books will be very difficult to replace, sources said. Brokers typically ‘sift’ physical warrants in search of brands in warehouse locations that are in high demand in the physical industry, and retain warrants that will attract a premium. They also trade warrants among themselves in search of....