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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anynonmous's picture

OT

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

GeneMarchbanks's picture

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

HelluvaEngineer's picture

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

scatterbrains's picture

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

oddjob's picture

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

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.

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'...

GeneMarchbanks's picture

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

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.

hE IS A DANGERUOUS MAN TO THE BANKSTERS. SINCE IF IT WAS UP TO ME THEY WO9ULD HAVE BEEN LINED UP AGAINST A WALL AND TERMINATED A LONG TIME AGO, i CONSIDER PAUL TO BE VERY REASONABLE.

THEY ALLOWED A HUNTING SEASON FOR BLACK BEARS IN nj. i THINK WE SHOULD HAVE A HUNTING SEASON FOR BANKERS. ALAS, IT WILL ONLY HAPPEN IN MY DREAMS

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.

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!

GeneMarchbanks's picture

Barclays just made my short-to-shit list.

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.

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.

qussl3's picture

What the heck do the cancelled warrants mean?

These are for physical delivery correct?

Someone HUGE blew up?

GMadScientist's picture

I believe commodity warrants are more like options on the LME contracts...so 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.

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...

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. 

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.

Irish66's picture

ain't normal says it all

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.

I did it by Occident's picture

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

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.

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.

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.

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.

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!?

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.

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. 

lizzy36's picture

Awesome.

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

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.

kito's picture

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

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.

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.

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.

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?

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.

Quintus's picture

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

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.

 

http://vegasxau.blogspot.com

Stax Edwards's picture

Q3 GDP revised lower to 1.8%

nah's picture

whatever happend to shoving money up the butthole to crap money

AngryGerman's picture

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

absente reo's picture

Do not these guys use stops or hedges? 

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

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!

 

AngryGerman's picture

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

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