London 18/12/2015 - Market observers are divided over who was behind today's significant move in LME lead cancelled warrants, although Trafigura was widely mentioned.
One source claimed that it was delivering against its physical trading book but that the metal would not be moved for a while. A second suggested that it was BHP Billiton material.
Cancellations jumped 54,125 tonnes on Friday to 79,175 tonnes, the highest in eight months. The largest increase was in Busan at 24,500 tonnes, followed by 12,400 tonnes in Rotterdam, 8,600 tonnes in Port Klang and 5,400 tonnes in Vlissingen. There were smaller increases in Johor, Bilbao, Barcelona and Antwerp.
Trafigura does not comment on market speculation, a company representative said. Earlier this week Trafigura received approval to raise its stake in and take de facto control of lead and zinc producer Nyrstar.
Stocks, meanwhile, rose a net 9,825 tonnes to 179,300 tonnes, with continued shifts in inventories at Busan and Port Klang - at the latter, stocks climbed 11,375 tonnes to 40,275 tonnes today.
The 216-percent rise in cancelled warrants has lifted the proportion of cancelled warrants of total stocks to 44 percent from 26 percent. Available on-warrant material now stands at 100,125 tonnes.
"We saw a large amount delivered earlier this week so there is no shortage of material and... there could be more stocks to come. For anyone to be holding that amount of stock, it would need to be a trading house with deep pockets," a warrant trader said.
A dominant holder has eased its grip from the 90-100 percent bracket to 50-79 percent across all three reported positions, according to today's LME data.
"They are clever and have reduced the holdings so lending guidance is easier and they can charge a backwardation," a trader said.
According to LME regulations, one entity holding 50 percent or more of the warrants and/or cash today/cash positions in relation to stocks should be prepared to lend, if asked, at no more than a premium of half a percent of the cash price for a day. At 80 percent, this falls to a quarter of a percent and at 90 percent it can be no more than the cash price.
"A large trader [is] looking for units to cover his physical shorts for next year," one source claimed "The brands/locations he doesn't want will likely end up back on exchange."
The sensitive Tom/Next spread was last at a backwardation of $1.50, while cash/Jan was at $4 back and cash/Feb at $1.20. Feb/March was in a small backwardation of $0.25 and March/3-mth was at $1. The cash/threes spread was at a small contango of $2.
"Given some large position holders of tom and cash, we would not be surprised if the spreads tighten, especially given the pick-up in cancelled warrants," FastMarkets analyst William Adams.
Three-month lead found support from the stock moves - it traded recently at $1,670 per tonne, up $53 on Thursday's close.
This is the second time this year that stocks moves in lead have made headlines - in March, Noble surprised the market with a massive cancellation of nearly 100,000 tonnes. This metal was said to head towards South Korea from Europe, where Metro reportedly offered an attractive warehouse deal to take on the stocks.
Prior to July, there were no lead stocks held in Busan. While stocks climbed here after a parcel of 49,150 tonnes was prepared, not all of the inventory arrived. A large part was reclaimed by Pacorini Metals, while some tonnage was allegedly sold back by Noble following a slump in metal prices and profits.
(Additional reporting by Perrine Faye, editing by Mark Shaw)