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Copper Withdrawal Orders From LME Soar To Record
While some (such as Bloomberg) see the unprecedented rise in orders to withdraw copper supplies from inventory at the LME as an indication of "improving demand," we suspect the huge demand bias from Asia (read China) suggests more is at play here than 'hope' in economic surprises. While the reasons are still unclear, the timing of this spike in demand is very close to our recently discussed concerns over the collapse in the Chinese Copper Financing Deal (CFFD) rehypothecation-based funding system. The unlimited "collateral" capacity of the previously described funding chains means that there may simply not be enough copper in bonded warehouses to meet the Letter of Credit needs once the copper warrants start being demanded upon LC termination. So, perhaps, the surge in LME delivery requests reflects a desperate demand for physical copper to meet these unwinding funding deals' needs. Either way, just as we saw gold vaults promptly emptied post the mid-April precious metals crash (especially that of JPMorgan), this sudden surge in physical demand bears very close watching.
Here is the chart of the record demand for copper from LME inventories...
And as a reminder (from our previous deep dive),
And remember that the final step of the CCFD debacle involves the overissuance of L/Cs related to any one specific bundle of copper, without limitation.
Step 4) Repeat Step 1-Step 3 as many times as possible, during the period of LC (usually 6 months, with range of 3-12 months). This could be 10-30 times over the course of the 6 month LC, with the limitation being the amount of time it takes to clear the paperwork. In this way, the total notional LCs issued over a particular tonne of bonded or inbound copper over the course of a year would be 10-30 times the value of the physical copper involved, depending on the LC duration.
Hence this spike in demand in the LC (letter of credit provider) trying to meet the demand of real collateral (as if a fractional reserve banker suddenly had to meet all his account needs at once). This offers some explanation for the recent pop in copper prices but misses the critical next step.
Once that copper is delivered to the LC issuing bank, and the CCFDs are unwound (due to the state intervention that is expected) then the bank has no need to carry a high cost commodity and may deluge an already over-stocked market.
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If you don't hold it, you don't own it.
One of these rehypothecated assets is going to be the trigger.
I don't know about copper as an indicator anymore. Seems like it's more of an indication of stockpiles than aggregate demand.
So your saying, their (China's) weakness is .. copper?
http://www.youtube.com/watch?v=q-EjM5OEg3A (1:45)
However LME copper inventories reporting still close to 5 year record highs...
http://www.kitcometals.com/charts/copper_historical_large.html#lmestocks...
I'm sure the rising prices in the copper market have absolutely NOTHING to do with the SEC giving JP Morgan, Credit Suisse, Deutche, Goldaman Sachs, Citigroup, and BlackRock the go-ahead to to start new copper ETFs at the beginning of 2013...nothing to see here.
http://finance.yahoo.com/news/jp-morgan-copper-etf-gets-160127914.html
Excactly. Is it going up or going to crash? Am I the only one that doesn't have a clue what this graph means?
Mines are having problems...
Cyprus may be having far-reaching impact of investors pulling assets off the financial system grid both to prevent confiscation as well as withdrawing physical material is protection against financial system rehypothication fraud.
This trend is likely not going to reverse as the more material that is withdrawn, the more asset fraud is revealed, the more assets are pulled, etc.
banana
"mouse that roars." i think this is a big deal because it gave lie to the whole euro project as somehow "safe for savings" unlike say...the American variant which simply drove interest rates to zero and said "too bad." we'll see if Japan has found something even worse (via hyper inflating the economy) sorry but this is "risk off" time.
I go with that theory. Plus, after the HK futures exchange imploded, what more proof do you need. Your wealth is not safe if a bank or financial institution has access to it. This system is so corrupt that customer assets are legally stolen. The only amazing thing is that anyone deposits anything into a bank or a banking encumbered warehouse.
I look at the repeated institutional theft and failures and see a series of crises drawn over time making a trend. But the system is trying to portray its collapse as a series of isolated events. Most people need to see it all happen in a weeks time to draw the correct conclusion. It never happens that way.
No, you arent. If there are a septillion delivery claims on one ounce of copper, doesnt the price go up?
Ever try to take possession of PM's at paper price?
It ain't easy, and most likely you'll just settle for paper.
Unless you actually need it, then you'll pay up for phyzz
strannick,
"If there are a septillion....." doesn't the price go up?
NO the price does not go up. Recall what happened in the Northern Rock bank run, the MF Global collapse, or most recently Cypriot banks: all three of those featured a lack of collateral.
When there is no collateral backing, then the value of the claims - underscore claims - on the specific asset (in this case copper) goes to zero. It's not a matter of what the underlying asset is valued at, it is a matter of what the claims on it are valued.
So, changing the focus but still adhering to the subject at hand, when all of the claims on rehypothecated gold are presented they will be found to be worthless.
"Excactly. Is it going up or going to crash? Am I the only one that doesn't have a clue what this graph means?"
First, it's going to go up, as counter parties scramble to deliver the collateral (copper).
Then when that phase is over, it's going to crash, as the people who received the copper realize, what the fuck do I want all this copper for, it isn't a monetary asset, and as an industrial commodity it isn't in demand because the economy is in the shitter. And they dump it. Most likely to then get another commodity that is more widely recognized for its monetary properties. Like gold, say.
Steel reinforcement-bar futures traded near the lowest level in more than eight months on concern that overcapacity at Chinese mills means supply will exceed demand.
Rebar for October delivery on the Shanghai Futures Exchange fell to as low as 3,422 yuan a ($558) a metric ton, the lowest for a most-active contract since Sept. 10. It traded at 3,436 at 9:58 a.m. local time. Futures have lost 4.6 percent in May and are set for a fourth monthly decline.
China’s steel output rose by 20.09 million tons in the first four months of this year, Wang Xiaoqi, deputy head of China Iron and Steel Association, said in conference in Shanghai yesterday. About 54 percent of that additional output has become inventory sitting in warehouses, Wang said.
“The rebar market seems to be on track to decline further as prices breached a series of lows in the past few sessions while investors added to their short positions,” Zheng Ge, an analyst at Wanda Futures Co., said by phone from Beijing. Lower iron ore prices also contributed to rebar’s fall, Zheng said.
Iron ore for immediate delivery at the Tianjin port in China fell 4.2 percent to $112.90 a dry ton yesterday, according to the Steel Index Ltd.
The average spot price for rebar fell 0.7 percent to 3,495 yuan a ton yesterday, the lowest since September, according to data from Beijing Antaike Information Development Co.
To contact Bloomberg News staff for this story: Feiwen Rong in Beijing atfrong2@bloomberg.net
" Lower iron ore prices also contributed to rebar’s fall" - Bollocks. Spot iron ore prices, along with dry bulk carrier rates, steel-workers' wages and a very few other inputs specific to steel production, are a residual derived from the value of the final product and all the other costs incurred to produce the final product. The iron ore price is what's left after everything else has been paid. Most of the other costs specific to steel production are sticky and non-specific (eg: it takes time to drive steel workers' wages down and if you drive them down too far the workers eventually go away and do something else) so spot iron ore and dry bulk carrier rates are where price weakness of the finished product shows up first. Rebar doesn't sell for less because iron ore prices have gone down. If iron ore goes down but rebar meets a strong demand then rebar sells for a higher price and the steel-makers make an excess profit for a short while until they compete with each other for iron ore and drive the price up. The only reason a steelmaker might lower his rebar price below the current market rate would be to increase sales and fill unused capacity, but pretty soon every other rebar seller will have to either take the new (lower) price or go out of business.
I see this sort of cart-before-the-horse idiocy all the time, the most common example being when people say that house prices are high because land prices have gone up. Along with confusion between correlation and causation the widespread misunderstanding of basic cause-and-effect effect relationships helps to explain why most marlets are so imperfect, which is why there are always opportunities.
How many owners does any given commoditty have?
clearly, more than one if recent revelations are to be believed
100 or more if gold.....
10-30 if copper....
gotta love the new math used by the financial industry
Eventually Lord Bankfine or J'aime Diamonds is going to figure out what the nature of the price (in)elasticity of the food supply is and then quietly proceed to buy 10X global production and request delivery...
Have you ever tried to order 100,000 cheeseburgers at a mcdonald's drive thru? You neither corner the cheeseburger market and alter the price, nor get 100,000 cheeseburgers.
My question is this: when do they install 777 machines and drink/cigarette girls at the NYSE?
I'd like to get a clone of the babe in blue from a previous ZH article, as I'm afraid the rehypothecated original has been around (the block) a few too many times.
How in the world do we get such a fucked up financial system?
Borrower: Hello Mr. Banker. I'd like to take out a loan and I'll put my copper up for collateral. Well it's not really my copper I'm holding it for a guy. Well technically it's not his copper somebody owes him money and he is holding it for collateral in my vault. But it's in my vault so I'd like to take out a loan.
Banker: sounds great how much would you like?
Borrower: well it's worth about 1 million dollars so I was thinking 15 million.
Banker: no problem we should be able to package this with a few other loans and sell it to the Greeks. Thank you for your business.
I'm staying short....
F them
I'm staying out....
Really F them
I'm getting out, I'm staying out, and I have my WIFE's permission, BITCHEZ !!!
I'm already out and I got rid of the wife to boot.
Well actually she got rid of me but I'm the one dancing a jig.
The biggest shortage we have isn't copper, silver, or gold, it's trust. And for good reason, sad to say.
When you can trust no one, remember there's only one form of money that has no counter-party risk. But y'all know that.
Hmmm. I'd like to believe you, but how can I trust you?
Trust, but verify.
Epic words of wisdom from one of the greatest men of the 20th century.
Some buy gold, others take delivery of copper. It's all about getting out of the fiat.
Its unfortunate that China(or China based commodities brokers) tried to monetize copper. It's the same for oil.
It freaks the banks when you won't hypothocate your PM. Why not, banks do it...can't be dangerous.
Author : Bill Holter
Published: May 28th, 2013
I’d like to connect a few dots for you. We had a couple of pieces of news come out on Friday that were strange. One piece did not even seem credible because of size and the other one seemed odd because of the lack of size. Here is what we learned and if this is true THE biggest financial news of the 21st century. Europe announced that they may crack down on the Shadow Banking System. Basically, assets of all sorts that are “deposited” within the system are routinely “re” lent out by the custodian. This “re lending” of assets is called rehypothecation. The scheme has gone on for years and has been abused to the tune of the same asset being lent out 10 times, 50 times or even 100 times over. Legal? Well no, but everyone does it and “it’s the way business gets done all the time”…plus the regulators turn a blind eye to …party on dudes!
Before I talk about the ramifications of the above, another, seemingly unimportant/unconnected piece of news hit the tape. 3 men were arrested in Hong Kong and in their possession were $500 million worth of “fraudulent” letters of credit, letters of guarantee and proof of funds; these were supposedly issued by HSBC and Standard Charter. A 4th man arrested was not named, only that he is 55 years old. Which coincidentally is the same age as Barry Cheung who sits (sat until his resignations this past week) on the boards of several government agencies, he was chairman of HKMEX and has very close ties to the CEO of Hong Kong, Mr. CY Leung. The investigation and arrests are tied to the HKMEX (metals exchange) that closed a week ago Friday and claimed that all open contracts would be settled in cash…not metal.
OK, so these guys got arrested and had in their possession $500 million fraudulent “collateral.” Is this ALL of the fraudulent collateral? Did they have more Do others possess or have pledged fraudulent collateral? How much? Where and to whom has it been pledged? How many times over has it been pledged? …And then out of nowhere, Europe decides to rein in the Shadow Banking System that is purported to be $80 TRILLION (with a capital “T”)! Do you see any connection here? I’ll make it easy for you, “collateral” is the common denominator.
I also want to mention that “collateral” is what makes the financial world turn. Everything runs on “credit,” if you have “collateral” then you can obtain credit. The problem now, that is being exposed, is that no one knows anymore if collateral is real or even “who’s” collateral it is anymore since it has been lent out so many times. Now, to add even more fuel to the fire, it turns out that some of the so called “collateral” is not and was not even real to begin with! Funds in the trillions of dollars have been lent and now it seems as if the collateral backing many loans may not be real. …And Europe is now considering pulling the plug on shadow banking? How many “assets” will banks and brokers have to sell to keep their capital ratios adequate? Do they even have enough real assets to sell to cover the collateral that turns out to be fake or has been lent out 10 times over (not to mention 100 times over). I might also ask the question, “What happens to the markets?” What will happen to the stock markets, bond markets, and real estate markets, ALL MARKETS if banks are forced into liquidation to cover for fraudulent or many times pledged collateral?
Back to the HKMEX, though quite small they did not even have the gold (collateral) to settle contracts with and this was a teeny tiny exchange. We have been watching GLD bleed, COMEX inventories decline and JP Morgan monkey with purported inventory between registered and eligible. Massive quantities of paper gold were sold last month that had the effect of depressing prices, was it real gold? No, we already knew this…but there had to be some sort of “collateral” or letter of credit standing behind the seller right? I mean who could be allowed to sell “naked” contracts if they didn’t have the muscle of “collateral” behind them to ensure “settlement” even if only in paper terms, right?
My point is this, the tide is going out and it looks like EVERYONE is naked and no one has drawers on. Margin debt for stocks are at an all-time high, shorts by hedge funds in gold are at an all-time high, printing by central banks are at an all-time high, yields on sovereign bonds (even the deadbeats like Spain and Italy) were recently compressed to all-time lows and are now rising…and the real economies across the globe are beginning to contract again. The “inflection point” has apparently arrived and fraud everywhere you look is being uncovered. In a system that runs on debt, “collateral” is the foundation. What are the ramifications when “collateral” is questioned and turns out to be nothing more than a piece of paper with no value whatsoever? Everything that has derived value from this initial capital …is worth nothing.
One last thought, this month (May) there are still contracts in both gold and silver standing for delivery with only 3 trading days left. First notice date for June gold will be upon us shortly, if there really is a “collateral problem” (now not just inventory questions but questions of the validity of paper collateral) we may be in for quite a show. Gold has been frantically moved all over the world during the last 2 months to make deliveries and keep up the “good face.” Can they get past June and get everyone delivered to? We shall soon see!
1. peter brown says:
May 29, 2013 at 5:20 pm
Don’t you just love bankers. They did a pretty good job of blowing up the world in 07/08; a much better job than Al Qaeda and are sure to do one hell of a lot better job with their one quadrillion dollars worth of financial weapons of mass destruction (derivatives) that regulators have failed to control and have allowed them to accumulate since then. There simply isn’t one quadrillion dollars of stuff in the world to hedge. So what the f…..!
Kurt Vonnegut observed in a Playboy interview: ‘People who are sick deserve to be sick. People who are in trouble deserve to be in trouble. Any man who’s on top is there because he’s a superior animal. That’s the social Darwinism of the last century and it continues to boom.’ TBTJ bankers running their TBTF banks might think that they are superior animals when they collect their multi million dollar bonuses at the end of the year, but in reality they are f…. morons who are going to blow us all to hell.
Close To Evil (248 pages)
Available in both print and ebook versions.
Peter Brown (Author)
its not as if the LME doesnt have more than enough supply. what, no mention of the record high inventory stocks held at lme by the assclowns on cnbc??
http://www.kitcometals.com/charts/copper_historical_large.html#lmestocks...
This is another reason why we need a free market and ALL financial loans to be unsecured.
10-30 times over 6 months! I'll never look at Chinas PPI the same again. ( not that I trusted it in the first place)
anyone (ie bloomberg) who thinks that this copper demand is due to industrial needs is a fucktard....the cffd rehypothesis is much more persuasive.
you do have a recovery in housing...but definitely not new construction. that's by far the biggest user of copper and if housing is going nowhere and China is not just slowing down but hitting the brakes...sorry but that's a lot inventory that needs to get moved...just like the article says..."to make way for even more." long pre-fab and houses with warranties.
http://www.zerohedge.com/news/2013-05-21/how-arbitrage-peoples-bank-china
Long PVC piping...............
this has to be another tremor from the unwinding of the paper things that say commodities.
these algos will harmonic themselves into a flatline curve.
good thing the fed has the power to unwind the tbtf, if not the methodology.
I want the physical ... not your 'promise' ... sorry ... those days are over ... for now .....
Did you read the above Central banks of the world?! Sorry folks ... no boonus on your already too generous pensions/benefits ... the merry-go-round may soon be stopping ......time for 'battening the hatches' tho'.
By the way, can I lay a cheap shot on Mr "Social Justice" barry ritholz ... who carps how alert he is to the 'equities' in the markets, the US economy, & US life ... while he ignores the fact that African Americans have been segregated to high heaven in Chicagoland since the 1950s ... yet BarryR and his cohort (including the august UofChicago, NorthwesternU, Uof Illinois, etc.) just cannot see the obvious statistical pattern? I thought you were 'empirical' to a fault Big Picture? ..... never mind ... ignore the fact that Mike Royko in his classic "Boss" explicitly highlighted this unpleasant obviousness decades ago now ...... Just another 'inconvenient' truth .... like the IRS is nothing more than a 'shake=down' service employed by the political class. Don't 'employ' a lobbyist to talk to me (i.e., pay me or my staff or 'organization') .. then we cannot 'help' you. Shades of the old Chicago-way ... how can that be in our brilliant era of beautiful Apple and Qualcomm and Intel and Cisco technology driven progresss? .......
and gold finally passes the $1400 line.
what is it, blythe?? are you out of papers to short the gold??
Copper ounce ten spot?
Dr Copper
is Chinas
new gynecologist ...
16 eyes. an experiment was done. It hovered over the swamp. I don't know where they were from maybe a different dimension. They came and stole my pennies. Scientists believe there are as many as 11 dimensions. an astral dimension. Scientific principles say they can live in 3 dimensions on their own planet but they are entering our atmospher and into our homes. When they move the pennies through a solid structure. They match up frequencey and phase. I was told the atom is 99% empty space. We are working together on an experiment to stop the thefts of humans as well.
You might want to lay off the 'shrooms, man.
Deleted- genuine double entry- not manipulated
LOL
The LME has no credibility left.
All price fixings are by the Rothschilds and their cohorts.
It's time people took delivery of their assets before the LME folds up.