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LME copper backwardations remain in pre-market; 'here to stay', traders say

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The major backwardations across the copper spreads remained in pre-market trading on the London Metal Exchange on Wednesday April 25, and are expected to continue for weeks or even months to come, traders told Metal Bulletin.

The red metal moved back through $8,100 per tonne to open at a three-month price of $8,149.25 per tonne, with a high for the morning session in London of $8,206.50.

Three-month prices slipped below $8,000 per tonne earlier in the week, and had threatened to fall further before short covering pushed prices higher.

Other base metals have also picked up steam, including tin, which opened at a three-month price of $21,625 per tonne, and lead, which opened at $2,073. Both metals remain in contango for both nearby and longer-term spreads.

“There has been quite a lot of selling LME and buying SHFE [on copper] for the last two months because of the negative arbitrage between the SHFE and the LME,” a category I trader said.

“Quite a lot of Chinese clients are bearish with the market, so they are continually rolling their price fixing period to a further forward [date] with the seller,” he added.

April-July copper was holding at a $90 backwardation as of 9:46 BST on Wednesday, and May-July spreads showed a backwardation of $60, while tom-next spreads remained in a contango of just 55 cents.

“There are so many reasons behind it; I don’t think you can pinpoint just one. We have some people who have sold copper at higher levels, and some who have sold against mining [stocks],” a second category I trader said.

“It’s not difficult to get hold of copper, but it’s in the wrong place. There are very small stocks on the LME. When these things happen, you always get someone trying to make more money out of it.”

Stocks of the red metal have been falling steadily in recent weeks and were down another 475 tonnes in LME-listed warehouses on Wednesday to 256,400 tonnes.

Cancelled copper warrants have also been at record highs, with some market participants suggesting they are at their highest levels for eight years. On Wednesday, cancelled warrants hit 108,175 tonnes in LME sheds.

“When you get to the April dates, people move their positions forward for a week or a month or whatever,” the second trader said.

“As long as the stocks are as low as they are, this is going to keep happening, especially if the price dips as some predict to $7,400. These backwardations are going to be around for some time to come.”

The movement of positions, he added, could be dangerous for the market, as it will become increasingly difficult to put a limit on the backwardations.

“People are just thinking: ‘if I move it for a week, it will be ok’. So many people are joining in. People are borrowing because it’s going to get worse,” the second trader said.

“The only way to soften it or get rid of it will be to move metal from non-LME locations to LME locations,” he added.

Claire Hack 
chack@metalbulletin.com 
@clairehack_mb

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