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Barclays Hit With "Immense" Copper Trading Loss; 50 Sigma Move In Cancelled Aluminum Warrants

Tyler Durden's picture


Just as Blythe Masters' (yes, that one) team suffered huge trading losses in the middle of 2010 following the abysmal RBS Sempra purchase, showing that when traders of scale lose, they lose big, so today another big commodities trader, Barclays, is reported to have gotten crushed on copper and other base metals bets gone wrong. Dow Jones says that Barclays is set to reshuffle its base metals trading team following a series of significant financial losses made by the desk this year. "The base metals trading team is run by Iain MacRae, who is currently still working at Barcap. The company has been unravelling a number of its copper positions recently, traders and brokers said, along with positions in other base metals it trades. The majority of the losses were in forward copper spreads, people familiar with the matter said. Although these positions were in-the-money a year ago, the market has since gone in the other direction, forcing Barclays to close the positions out at significant loss, these people added....The investment banking division of Barclays Bank, Barclays Capital has been a category one ring dealing member of the London Metal Exchange since May 1997 and is traditionally a high volume participant in base metals futures and options trading. It also owns a 2.3% stake in the LME." As to who the most likely beneficiary of this collapse is Goldman, which in tried and true fashion told its clients to be buying copper throughout the carnage, only to close its copper position at a 20% loss a few days ago. But not before indicating that even more bloodbathing is in store for the future, having concurrently reopened future bullish positions in copper.

As for Barclays, the half a billion loss will likely not impact EPS - after all it will be represented as a "one-time item."

People familiar with the situation said it's been an extremely tough year for the base metals desk, with the losses mounting steadily over a period of months. While few market participants could have predicted the weakness in commodity prices as a result of the deterioration in the health of the euro zone this year, the scale of Barclays' losses in base metals trading is immense, people familiar with the situation said. No figure has been put on the size of the losses--and Barclays declined to comment--but a figure of $500 million is being bandied around by LME metals market participants.

The bank's losses also come at a time when Barclays has been beefing up its activities in the physical trading arena. The bank has for a long time been a large player in financing metal, but has been boosting its smaller operations related to the physical movement of metal, particularly in Asia. The growth in its physical business comes as Barclays teams up in a joint venture to warehouse metals with steel trader Metalloyd and an individual investor, Alex Gunn. The firm, Erus Metals Ltd., was recently approved as a LME warehouse.

In other news, it is unclear if it is Barclays wreaking LME havoc which, as Sean Corrigan points out, just saw a 50 sigma move in cancelled Aluminum warrants in the past 2 days. Whatever it is, it ain't normal.

h/t London dude trader


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Thu, 12/22/2011 - 09:16 | 2003757 chaartist
chaartist's picture

good luck

Thu, 12/22/2011 - 09:27 | 2003772 anynonmous
anynonmous's picture


Arthur Levitt on Bloomberg just now went into a tirade against Ron Paul  egged on by Keen and prewit calling him a dangerous mad man


fuck Bloomberg

Thu, 12/22/2011 - 09:30 | 2003777 GeneMarchbanks
GeneMarchbanks's picture

Yep. I listened to that. Ron Paul also attacked by CNN yesterday, it's about to get ugly.

Thu, 12/22/2011 - 09:30 | 2003778 HelluvaEngineer
HelluvaEngineer's picture

Arthur is just terrified that Ron Paul might enforce the law, unlike him when he was head of the SEC.

Thu, 12/22/2011 - 09:41 | 2003796 scatterbrains
scatterbrains's picture

Levitt some might say, nursed Madoff along all those years.

Thu, 12/22/2011 - 12:27 | 2004217 oddjob
oddjob's picture

And what egomaniac ZH contributor pumps the Gold Bullion International fund that uses Levitt as an advisor?...Good ol' Reg.

Thu, 12/22/2011 - 09:35 | 2003790 Schmuck Raker
Thu, 12/22/2011 - 09:56 | 2003821 cranky-old-geezer
cranky-old-geezer's picture



RP takes the lead in Iowa and down comes the order to MSM puppets: "Discredit him any way you have to. Make him drop 5 points in the polls ...if you want to keep your job."

And it'll work on dumb American sheeple.

Why will RP not be elected?

Because most Americans are gullible sheep believing whatever they hear on TV news.

Thu, 12/22/2011 - 10:16 | 2003864 Schmuck Raker
Schmuck Raker's picture

@ C.O.G., "Why will RP not be elected? [etc.]", why make their job any easier by repeating their theme for them?

Not junking, just sayin'...

Thu, 12/22/2011 - 10:15 | 2003865 GeneMarchbanks
GeneMarchbanks's picture

It ain't called the 'idiot box' for nuthin'...

Thu, 12/22/2011 - 09:40 | 2003795 dcb
dcb's picture

Let's see, that conflicted clown, who works for the industry as a lobbyist, presents hijmself as a consumer advocate. i AM TELLING YOU EACH AND EVERY TIME SOMEONE LIKE HIM CALLS HIM THAT IT JUST CEMENTS MY SUPPORT FOR THE MAN.



Thu, 12/22/2011 - 09:42 | 2003798 MFL8240
MFL8240's picture

The tribe does not want the apple cart over turned so they must destroy the one man that will end their monetary theft and destruction of America for self interest.  Exactly what this same tribe did in Germany in the 30's.

Thu, 12/22/2011 - 10:42 | 2003945 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Tyrants always fear freedom.  Keep knocking Ron Paul establishment presstitutes and watch his numbers continue to  increase.  Ha, ha!

Thu, 12/22/2011 - 09:18 | 2003759 GeneMarchbanks
GeneMarchbanks's picture

Barclays just made my short-to-shit list.

Thu, 12/22/2011 - 10:24 | 2003883 CPL
CPL's picture

Now there is a black swan...their paper commodities trade imploding because they are off the mark of retail valuation by 20-70%.


Looks like the greater fools have suffered their own loss by their own stupidity and greed plus the inflation rate they were intending to manage but never got around to it.


However it's not over yet.  Copper, falls on Aluminium, Aluminium falls on coal, coal falls on power production which effects consumer goods which falls on tax recipts all across all sectors.

Thu, 12/22/2011 - 12:45 | 2004261 SAT 800
SAT 800's picture

Every once in awhile over the last twenty five years or so I've seen anouncements like this; It always amazes me. They call them trading departments, or trading desks; what the F is wrong with them? Whey do they hold to on to losing positions until they threaten, or indeed, collapse, the whole enterprise? Where is the floor manager? Who's in charge? If I know what a stop loss is, and I use it; why don't they? "Professional Commodity Traders"? Maybe they're just young and they think they know better than the market. I wouldn't hire anybody under 45 who hadn't already lost some of their own money.

Thu, 12/22/2011 - 09:22 | 2003761 qussl3
qussl3's picture

What the heck do the cancelled warrants mean?

These are for physical delivery correct?

Someone HUGE blew up?

Thu, 12/22/2011 - 09:30 | 2003776 GMadScientist
GMadScientist's picture

I believe commodity warrants are more like options on the LME Barclay's (or others) are cancelling calls, in essence.

I think the significance is that deleveraging is in full swing and commodities like Al are expected to dive.

Thu, 12/22/2011 - 12:09 | 2004164 slewie the pi-rat
slewie the pi-rat's picture

yes, i think you are correct

lme warrant definition - Google Search

we find stuff like:

  • Delivery against LME contracts is in the form of warrants, which are bearer ... Each LME warrant is for one lot of metal, the tonnage of which is dependent on the ...
  • Purchasers of contracts, which are then left to reach maturity, will receive a warrant for a specific LME approved warehouse to take delivery of the metal if ...

what happened?  what blew up?  mebbe some of those plane orders from last summer got cancelled comes to mind...

Thu, 12/22/2011 - 13:09 | 2004301 jdmce
jdmce's picture

A warrant is a legal document issued by an LME warehouse stating that the holder has ownership of a particular lot of physical metal.  Canceling a warrant basically means that you have intention to remove particular metal from a warehouse.  The large jump in LME cancelled warrants for aluminum is likely related to a a long term finance deal going through.  As you may or may not be aware there is a shit ton (its a scientific term look it up) of aluminum in the world.  Therefore physical players can earn a positive return storing the metal in a private facility.  This jump in canceled warrants represents someone putting a trade on not blowing up of one. 

Fri, 12/23/2011 - 16:34 | 2008163 Quaderratic Probing
Quaderratic Probing's picture

4.5 million tons listed at the LME but 75% is paper going out 36 months. Below $2000 fully one half of the worlds smelters are not profitable. You may be right the trade is on because they will be shutting down smelters. I have worked in one for the last 35 years and seen the cycle 4 times. Pre-LME if you could keep running and store the metal you could steal customers and then have a jump on return to normal by releasing the store before the other guy could get up to speed.

Thu, 12/22/2011 - 09:21 | 2003764 Irish66
Irish66's picture

ain't normal says it all

Thu, 12/22/2011 - 10:07 | 2003847 DeadFred
DeadFred's picture

'ain't normal' is the new normal. A 50 sigma move is worth looking at now-a-days, but a mere 10 sigma? just another day in the neighborhood.

Thu, 12/22/2011 - 14:53 | 2004763 I did it by Occident
I did it by Occident's picture

but all the little sigmas in woebegone are above average.  :)

Thu, 12/22/2011 - 09:25 | 2003768 sudzee
sudzee's picture

I think I read somewhere that JPM held LME 86% of copper shorts back in June. Its amazing how much money can be made or lost on PAPER metals.

Thu, 12/22/2011 - 09:27 | 2003769 dcb
dcb's picture

OK, when I trade and things go up, I take some profits, I always put in stop looses, and I spend a little bit on a put or inverse fund. there always is a stop in place to buy and inverse fund if things break lower. can't figure out why the bankers wouldn't do this. But I guess it could limit gains, hence bonus, and when you have state backing who cares about losses.

Just another reason to get rid of prop desks.

Thu, 12/22/2011 - 09:35 | 2003788 jay28elle
jay28elle's picture

"...can't figure out why the bankers wouldn't do this."

If it is true that history repeats itself, no ultimate worrys about downside risk - the taxpayers will simply eat the loses.

Fri, 12/23/2011 - 00:36 | 2006433 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

That's right, privatize the gains, socialize the losses.  At the end of the day the entire financial system is going to collapse because of these shananigans.

Thu, 12/22/2011 - 10:00 | 2003828 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Stops don't always "stop".  I am not saying this happened but in a "fast" market the underlying can race through your stops either up or down.  If insiders like Barclay & MF Global lose their asses why would an individual think they can make money in these markets!?

Thu, 12/22/2011 - 10:24 | 2003889 DeadFred
DeadFred's picture

Day traders who are playing the market as range bound are kicking ass right now. You can win, you can lose, but you can't be safe anymore and these banks were a bit slow flipping their trades from the 'safe' mode over to the new normal. Question everything that was in the old play book. Expect the old patterns to be broken. The S&P can go to 800 but it can also go to 1600 and it might do both in rather quick order. Be nimble or be out. Out is safer.

Thu, 12/22/2011 - 14:59 | 2004804 I did it by Occident
I did it by Occident's picture

Not to mention that the skyNet HFT algos can make dip the market down for a split second and trigger your stops when you don't want them triggered. 

Thu, 12/22/2011 - 09:28 | 2003774 Schmuck Raker
Schmuck Raker's picture


Thu, 12/22/2011 - 09:32 | 2003780 lizzy36
lizzy36's picture


So once again VAR worked well. Or perhaps the just forgot to put the variable whereby copper actually goes down, in the model.

Thu, 12/22/2011 - 10:29 | 2003903 DeadFred
DeadFred's picture

This looks like the chart generated by someone with the mythical belief that fundamentals means something. It is also evidence that cannabalism exists among the TBTF.

Thu, 12/22/2011 - 09:32 | 2003781 kito
kito's picture

i guess barclays missed that special first to know inner circle memo from ben regarding no qe3...............

Thu, 12/22/2011 - 09:40 | 2003794 Quinvarius
Quinvarius's picture

The memo clearly stated that profits are money you borrow from the Fed at 0%.  Any attempt to spend said profits, or allow them to in any way circulate will be regarded as a terrorist attack.  Money is only for banker balance sheets.  It is decoupled from the economy.

Thu, 12/22/2011 - 10:05 | 2003841 cranky-old-geezer
cranky-old-geezer's picture



[Free Fed] Money is only for banker balance sheets.  It is decoupled from the economy.

That's the case only here in America. Rest of the world looks at the aggregate. 

It's why USD collapse will begin outside America ...taking Americans by surprise.

Thu, 12/22/2011 - 09:33 | 2003783 Quinvarius
Quinvarius's picture

I suspect JPM's copper pump scam with slow warehousing and manipulation was all designed to get more silver on the market anyway.  The more copper mining that goes on, the more silver byproduct that gets produced.  Barely anyone mines for silver at these prices because it requires a super rich vein to be profitable.  So they need the silver byproduct that comes from other mines to increase.  Just another dead end in the paper ponzi.

Thu, 12/22/2011 - 09:41 | 2003797 ThisIsBob
ThisIsBob's picture

Not profitable to mine at these prices?  So silver miners must have been substantially more "not profitable" over the past 10 years, then?

Thu, 12/22/2011 - 09:37 | 2003789 Quinvarius
Quinvarius's picture

Also, would anyone have attempted to go long base metals if the government had not been LYING about all economic data?

Just more proof that any time the government gets involved, everyone loses.

Thu, 12/22/2011 - 09:37 | 2003793 Quintus
Quintus's picture

Couldn't happen to a nicer bunch of A**holes.  

Thu, 12/22/2011 - 09:45 | 2003802 vegas
vegas's picture

50 sigma move? Ahhhhh, just noise.

If I was a Vampire Squid host, I'd be asking for a little of my blood back.

Thu, 12/22/2011 - 09:46 | 2003803 Stax Edwards
Stax Edwards's picture

Q3 GDP revised lower to 1.8%

Thu, 12/22/2011 - 09:56 | 2003818 nah
nah's picture

whatever happend to shoving money up the butthole to crap money

Thu, 12/22/2011 - 10:23 | 2003885 AngryGerman
AngryGerman's picture

at least Barcap did not try to use client funds to fill the holes...

Thu, 12/22/2011 - 10:24 | 2003886 absente reo
absente reo's picture

Do not these guys use stops or hedges? 

Thu, 12/22/2011 - 11:55 | 2004135 slewie the pi-rat
slewie the pi-rat's picture

hey, noobie:  welcome to zH!

The majority of the losses were in forward copper spreads, people familiar with the matter said.

so, spreads are a type of hedging, i would think

you can get the copper chart for the crimex [mar'12 contract] here Futures and Commodity Market News Categories : Courtesy, TFC Commodity Charts

pretty hard to tell what the banksters are doing w/ their trades [as usual], but you will see price, volume and open interest here, and they do tell a story, open to interpretation [as usual]

the crimex contract = 25,000 lbs, and the london LME contract = 25 metric tonnes

Thu, 12/22/2011 - 10:29 | 2003895 Zero Govt
Zero Govt's picture

 "..Barclays Hit With ..Immense.. Trading Loss ..50 Sigma Move.."

What's "50 Sigma" in English?

is it like $50 million ...or $50 Billion ...or 50% percent???

I like to know a British Banks losses (in infinite detail)... it increases the smirk-o-meter on my face when i pass their branches on the High Street

Whoever said a Depression was all doom and gloom just doesn't know how to get their kicks!


Thu, 12/22/2011 - 10:30 | 2003910 AngryGerman
AngryGerman's picture

learn your greeks. hint: something to do with how prices vary...

Thu, 12/22/2011 - 11:09 | 2003994 Zero Govt
Zero Govt's picture

I've got something to learn from the Greeks?!!

Hey i'm debt free... they can all go suck eggs until they're square far as i'm concerned

Thu, 12/22/2011 - 21:39 | 2006056 Market Efficien...
Market Efficiency Romantic's picture

Learning from the Greeks and not from some derivative textbook tells me, 50 sigma is an indication that a distribution concept along with statistical measures such as StdDev is not applicable in this case.

It may be a dumb argument to defend ones expectations and reality and outcomes moving absurdly far away from what could have been expected from a poorly fitting risk model.

The object 'copper warrant cancellation over two days' by itsself pretty much tells that it is a special event, not a naturally flowing occurrence. Why would you measure such an event with a normal distribution risk model?

Agreed, it's an extreme event, but the sample timeframe, measurement and other parameters could well let it vary between 5 and 100 StdDevs. 

I just believe the sigma concept has in recent years too many times been used in risk management to justify and downplay excessive risk taking or ex-post explain risk taking with possibly extinctive consequences as reasonable.

The concept is a fradulent way to magically let people perceive discrete unevenly distributed and uncalculable risks as normally distributed. Jumping to that assumption makes it easy to convey great risk/return plays.

At ZH, I will just look at it as sarc offsetting the typical risdiculous industry PR.

Thu, 12/22/2011 - 13:16 | 2004315 slewie the pi-rat
slewie the pi-rat's picture

hey, zero_G!

they tried to teach me this shit back in the 60's:   " have 1 hour to complete the exam; you may use a slide rule..."

  • when some data are plotted, they fall into what is called "normal distribution" aka a "bell curve"
  • these graphs look like a hill--up one side and down the other-- [or a bell] and the "norm" is the top [or "mean" i think]:  where the most data point fall;  the other data fall around this norm in an "array" and deviate from the norm [don't say it!]
  • different data spread out in different ways, and a standard deviation [aka 1 sigma] is a measure of the dispersion of a set of data from its mean = a measure of dispersion in a frequency distribution, equal to the square root of the mean of the squares of the deviations from ...the mean!
  • b/c of the math involved, whenever this bullshit is wanked up by dorksRus, almost all of the data falls within 3 sigmas of the mean--one way or t'other.  you can see this on the cancelled aluminum warrants chart where the little colored lines above & below the mean are the 3 +/- STD's [L0L!!] from the norm, mean, average, or wtf you wanna call it, ok?
  • now the warrant cancellations fall outside the normal curve from time-to-time, more in the last few years, as we can see by the white "spikes";  also, they tend to "surprise" on the upside of cancellations:  there are only one or two points outside 3 STDs on the low side of cancellations and about 25 on the upside over 10 years, which i think we might call bias
  • this recent data point is a 50-sigma outiler aka a black swan, statistically [who could have seen this coming?]
  • when a teacher "grades on the curve" s/he arrays the exam scores and gives the ones around the mean B-/C+, and so if you scored only 50% but the mean was a 30% score, you would prob get an "A"
  • something this far above the normal distribution curve is sometimes called  a curve breaker b/c it might actually change the "normal" distribution;  here, it would do so over the last 3 years, i think, but not so much over the 10 years of data

so what happened here?  maybe some airplane order cancellations;  but maybe just playaz leaving the casino after the MFGlobal fiatsco.  a user or even a hoarder does not hafta buy aluminum, copper, gold or silver on an exchange and too much hanky-panky will drive them to the producers for their product b/c the banksters have screwed the pooch pretty severely, here, w/ the MF bullshit and the "reasons" and the "rules" in the "casino", not to mention the "prices" and the manner in which they are derived by insolvent fascist zombies as part of their myriad schemes to relieve their "clients" of their money and other assets

Thu, 12/22/2011 - 15:30 | 2004949 Zero Govt
Zero Govt's picture

i'm familiar with the bell shaped graph.. those loony 'Peak Oil' shills keep wheeling it out to keep Exxons gross profits free from closer inspection

as i understand it many Hedgies etc are already usurping the rigged exchanges (and diseased dinosaur Bullion Banks) and increasingly buying metals direct ...there's sure to be a counter-attack like De Beers hysterical pitch about "Blood Diamonds" to shut down competition

...though JP Morgan shouting "Gold Rigging" doesn't have the same ring of credibility!

Are you going to give me a test/quiz/homework on Sigma then? 

Thu, 12/22/2011 - 10:42 | 2003944 Seize Mars
Seize Mars's picture

If you've ever traded LME products you would say the way they do it (the ring) makes Chicago-style open outcry look like high-tech.

Thu, 12/22/2011 - 10:59 | 2003977 FranSix
FranSix's picture

Guess inflationary theories and hard dollar terms for commodities doesn't exactly work.

Thu, 12/22/2011 - 11:19 | 2004029 Zero Govt
Zero Govt's picture

Forget "Theories" ..Barclays Bob Diamond is demanding a nanny and nappies ...he wants every deal underwritten by taxpayers in case he gets his sums wrong.. Boo Hoo  ;,,((

if Bob 'Big Baby' Diamonds' cheeks look flush red it's not his skin its that he's got permanent nappy rash ...a generation of spoilt brat bwankers backstopped by the Nanny State would be pathetic if it wasn't so pitiful

Thu, 12/22/2011 - 11:24 | 2004046 SAME AS IT EVER WAS

Its rodents like these, and the rest of the vermin "investment firms" that fuck everybody with thier "tradeing". I hope they all go broke and repeat 1929 by jumping out the window of a very, very, very tall building.

Thu, 12/22/2011 - 11:39 | 2004085 mayhem_korner
mayhem_korner's picture

The company has been unravelling


'nuf said.

Thu, 12/22/2011 - 16:10 | 2005114 Stormdancer
Stormdancer's picture

And this on top of the indigestion they're surely still suffering from eating all those dangly bits off the Lehman carcass...

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