Copper Surges After Report Mysterious London Buyer Has Cornered Up To 90% Of Market

Tyler Durden's picture

Copper prices are surging this morning (in the face of Goldman's recent warnings of a plunge), jumping 4 handles apparently on the heels of a WSJ story in which LME admits that a single buyer has snapped up more than half the copper held in London Metal Exchange warehouses, giving it control over a crucial source of supply and raising concerns among traders about the potential for higher prices. What is more remarkable is, as WSJ reports, on several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses. Though no confirmation has been given traders suggest the firm cornering the copper market is Red Kite Group, a London hedge-fund manager that focuses on metals trading.

 

 

As The WSJ reports,

A single firm has owned at least 50% of the copper in LME-licensed warehouses for much of the last four months. Accumulating such a dominant position became easier in June because the amount of metal under the exchange’s watch had plummeted, as had prices. The warehouses have held less than 160,000 tons of copper since mid-June, compared with more than 360,000 tons at the start of the year. Some analysts say copper production is running behind demand, forcing some users to draw on stockpiles in LME-licensed warehouses.

 

 

On several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses, equal to about 140,000 tons, or enough to make the copper parts of the Statue of Liberty more than 1,700 times. As of Wednesday, the buyer owned between 50% and 80% of copper held in warehouses, according to the most recent exchange data.

Rumors are that it is Red Kite...

Established in 2004, Red Kite is now run by two of its founding partners, Michael Farmer and David Lilley, both alumni of the German industrial conglomerate Metallgesellschaft AG, which collapsed in 1993. The fund is known for its bold and extremely profitable trades involving copper, as well as other metals. Red Kite Group manages $2.3 billion, according to its website.

 

Red Kite declined to comment.

The London Metal Exchange, owned by Hong Kong Exchanges & Clearing Ltd. , doesn’t limit how much metal a single trader may hold in its warehouses, and says that it has mechanisms in place to prevent market squeezes—a situation in which holders of a large share of the supplies use their position to jack up prices.

Some traders say the concentration of so much copper under one firm’s control is already driving up prices. It costs about $72 more per ton to buy copper for delivery today than for delivery in three months.

 

“There’s no reason for anyone to be holding 70% of the stocks of the commodity,” said Jessica Fung, head of Commodities Metals at BMO Capital Markets.

*  *  *

As Metal Bulletin notes,

The Red Kite metals fund posted returns of just over 50% in 2013 after a well-timed switch from a short to a long position in the copper market around the time that prices posted their lows for the year, well-placed sources told Metal Bulletin.

Simply put, they were the market (buying it up in hopes to corner the market)...

The long position delivered returns as copper prices rebounded to finish the year up nearly $700 from its 2013 low, but Red Kite also made strong returns on physical inventory and spreads as copper premiums jumped in Asia and the LME forward curve moved into backwardation, market sources told Metal Bulletin.

 

"The Red Kite switch was definitely up there as one of the big trades of the year; the volumes were huge," a source active in the copper market told Metal Bulletin.

 

At the time, sell-side analysts in particular were turning strongly bearish on the copper market, reacting in part to lagged evidence of the slowdown in demand that prompted Red Kite to run short positions around the start of the year, sources said.

 

"Good data is very hard to come by in the copper market, and at the time I think a lot of people were trading looking in the rear-view mirror," one observer of the company told Metal Bulletin.

*  *  *
Summing it all up - Is Red Kite the next Amaranth?

*  *  *

The irony of someone cornering another metals market a week after the death of Nelson Bunker Hunt is not lost on us.

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Vampyroteuthis infernalis's picture

Start a rumor and force a short sqeeze. Someone is laughing all the way to the bank (or in it).

0z's picture

Is anyone supposed to give a fuck what Jessica Fung's opinion on this matter is? If they stick with it, they're gonna make a shitload of money. But their profit may end up being 'nationalized'.

Manthong's picture

Something doesn’t sound right here.

Barrick alone expects 2014 copper production to be something over 200,000 tons.

http://www.barrick.com/operations/

 

0z's picture

This is the real 'short-bond' trade.

PAPA ROACH's picture

Amaranth 2.0 in the making here folks...... Grab some popcorn and a few put options and watch

SoberOne's picture

PBOC, Russia, Vampire Squid or Twinklevoss twins?

BigJim's picture
 Copper Surges After Report Mysterious London Buyer Has Cornered Up To 90% Of Market

Wow, Tyler, copper's up 1%! That really is exciting :-)

Save_America1st's picture

metals market manipulation???  That's hilarious...only conspiracy nuts believe in that.  It's just a spook story that metals stackers tell their kids at night...try to manipulate the metals market and Keyser Soze will gitchya.

We all know there's no such thing as manipulation of metals markets....sheesh.

;-)

James_Cole's picture

No way to corner copper, after dropping under 3$ this story sounds like desperation..

Watson's picture

Agreed. 25 yr chart shows, for long period, trading range _top_ at USD 1=50. Went to USD 1=50 again in 2009. Recent years price activity looks like speculative blow-off starting 2005, slightly surprising not yet collapsed - effect of ultra-low interest rates? To me, when it goes, it halves back to USD 1=50. And anyway, a rise of 1% is _not_ a surge. Watson

KnuckleDragger-X's picture

It's not about production, its about driving the market. London market is easiest to rig and the rumor is now running. Muppets roasting on an open fire.

Kirk2NCC1701's picture

<--- The East:  China, Russia, India

<--- The West:  Soros, Buffet

Which of THESE is most likely to have done it?  BTW. I'd have added GS to the list, but Squid Vicious only corners paper and politicians, not hardware.

thunderchief's picture

It is funny how this happens with a base metal, one that is linked with gold production and the greater faultering economy, but oddly, with gold and silver physical demand hitting record highs, there is no mystery man cornering these markets. Maybe its just the Fed again.

SoilMyselfRotten's picture

Guessin the derivatives on copper are relatively less than gold and silver

halfasleep's picture

maybe they should change their name to Copperman Sachs

KnuckleDragger-X's picture

Copper is underrated as a value store but only if there is demand or in this case, if you can herd the market.

Bangin7GramRocks's picture

Hey, isn't that ill..ah fuck it. Nevermind!

ForWhomTheTollBuilds's picture

I'm sure our regulators will get straight to the bottom of this.  

 

Whats next?  Warehouse chicanery in the PM markets? 

disabledvet's picture

Whorehouse chicanery more likely.

This is a suicide mission.  Silver is one thing but there is billions of tons of copper in Argentina alone.

Refining the ore is expensive...so this price action will get those ships moving that's fer sure.

One meteor that landed a billion years ago sitting on the ocean floor is enough to crash the price however.  Trade this move at your own risk.

starman's picture

Energizer bunny?

gatorengineer's picture

Did he really say Red Kike Group?

Notsobadwlad's picture

Yup that was an obvious one ...

A "kite" is a type of shield ... so Red Shield is Rothschild... or maybe they just want us to believe that.

Kaiser Sousa's picture

there is nothing more exciting than watching the phony paper price of Silver trade in a 2 cent range throughout the day...

SheepDog-One's picture

Almost as fun as watching the zombie indexes get slowly pumped to green!
Almost......got it.....just.....a bit......more....

SheepDog-One's picture

OK so how long till 'the warehouse' is discovered to be empty?

agstacks's picture

...and the price crashing to zero along with it. 

CNBC: It's easy to see what happened here.  There is no copper left, so the price must meet with supply.  No supply means a price of zero.

NYPoke's picture

Only word that comes to mind: China.

 

Was glad to see the name Bunker Hunt above though.

disabledvet's picture

Fifty bucks an ounce AND interest rates at double digits!

Those were the days!

kchrisc's picture

"Only word that comes to mind: China."

My money is on the Rothschild banksters.

An American, not US subject.

 

But then I used to think that the Fonz was cool.

i_call_you_my_base's picture

Demand delivery in full.

yogibear's picture

That woild roil the paper markets. Probably 100:1 paper.  Same with gold and silver.

 

disabledvet's picture

Sure no problem. 

This is a thousand foot long ore ship where do you want it?

ekm1's picture

Rehypotheticated for repo market and interest rate swaps.

Same with oil and anything else.

 

For oil $80 wti seems to be the margin call threshhold. Strongly defended, until sacrificial lambs run out of customer's money

 

 

TRIPLE LEHMAN

X.inf.capt's picture

greetings, ekm1..

speaking of commodities

question....with the coming storm...what 3 commoditie would you have on hand for barter to survive and prosper with...

thank you...

ekm1's picture

The storm will be only for insolvent elite.

It depends on how much money you are trying to protect.

 

For us sheeple, there won't be any difference.

Paper cash is first choice

disabledvet's picture

Silver.

Anti bacterial.

Also cotton.

No way am I trading beef.  Holsteins and milk have gotten crushed because of these debt clowns.

disabledvet's picture

Yo mamma's basement?

Must be a big basement!

wrs1's picture

So can we count on Dr. Copper to say anything about th economy then?  Probably not and with this revelation, one has to assume the same sort of crap is going on with oil too but the reverse there.  The surplus has been dumped in that case but not here.  This is strange because I kept reading posts on this very site that claimed the Chinese would be deleveraging copper as the commodity finance game blew up.................

disabledvet's picture

So go ahead and buy bitch.

Goddamn right! Take delivery too!

That'll be 25'000 DOLARES a DAY while we're waiting...

RaceToTheBottom's picture

Damn that Son of a Hunt!

ajax's picture

 

 

Do those two idiots a favour and just cut their dicks off now.

...out of space's picture

didnt china buy  LME?!. and what about all that china deal with cooper as a colederal for credit? 

NoWayJose's picture

Get yer paper copper, step right up, get yer paper copper...