SANTIAGO, Chile Physical
copper premiums dont reflect market fundamentals, an
indication that "the copper value chain is broken," according
to Luvata vice president of metals Ian Scarlett.
"We would like premiums to
reflect the business environment supply-demand cycles and not
to be complicated by structural games," he said at the Center
for Copper and Mining Studies annual Cesco Week in
Santiago. "At a time of increasing surplus, were seeing
material being restricted and premiums increasing, which is not
Queues to get copper out of
warehouses have grown as material has flowed into storage,
attracted by paid incentives and locked away in financing
deals. At the same time, premiums have shot higher,
particularly at the three major storage locations of Antwerp,
Belgium; Johor, Malaysia; and New Orleans.
"Instead of being the market of
last resort, (London Metal Exchange) warehouses become the
market maker themselves," Scarlett, who is on the LMEs
copper committee, said.
The LME is a great institution,
but has "fallen asleep" on the issue of warehousing, he
"Im certain the
exchanges new owner and current team are smart and
energetic enough to put the energy into sorting it out,"
Scarlett said, referring to Hong Kong Exchanges & Clearing
Ltd., which acquired the LME last year. "The new owner has paid
a lot of money for the LME and has a vested interest in it not
having a credibility problem. They themselves have recognized
the warehousing issues."
London-based Luvata has "more
and more things to consider when were trying to source
material for our factories, and this is making things hard," he
said. "Customers are not easily accepting they have to pay
Separate load-out rates for
individual metals could be one solution to the warehouse
queues, Scarlett added.