London 26/04/2016 - Lead inventory moves at LME-registered sheds have returned to the forefront, as cancellations have risen a combined 33,000 tonnes in the past three days to 79,700 tonnes, up 70 percent since April 21.
Today’s move was centred on Vlissingen, which rose 11,650 tonnes. But, Friday and Monday’s increase were Asia-centric - Port Klang, Malaysia was up 9,425 tonnes and Busan, South Korea increased 8,850 tonnes.
Rent games were likely to be behind the move, participants said, as warehousers in Asia and Europe compete against each other to attract material.
“[Today’s move] could be retaliation by the warehouses, which earlier in the year lost their lead metal. In this case it would be simply a battle to survive by warehouses,” a trader said.
Earlier this year stocks jumped to a six-month high of 200,500 tonnes, due a large chunk of metal re-warranted in Vlissingen.
Prior to this, December saw substantial increases in cancelled warrants, which jumped more than 80,000 tonnes, due to metal booked for removal - predominantly in Busan.
Busan is the largest location for lead at 46,825 tonnes, of which 29,100 tonnes are on-warrant. Vlissingen holds 46,250 tonnes, of which 24,200 tonnes are available, followed by Port Klang at 44,425 tonnes, of which 16,350 is on-warrant.
“It is the usual warehouse games playing out, it is not a reflection of physical demand,” a second trader said.
Lead on a three-month basis dropped $16 to $1,741, despite the rise in cancelled warrants. Total stocks, meanwhile, were unchanged at 175,325 tonnes.
“Themes in lead warrant cancellations continued today, rising to total over 45 percent of warehoused inventory earmarked for exit - as yet not impacting greatly upon outright prices, yet spreads unsurprisingly bid,” a third trader said.
LME warrant holdings data showed there is one holder in both the cash and the ‘Tom’ position in the 30-39 percent bracket.
The increase in cancellations, coupled with a dominant holder, has meant that there is potential for a squeeze on the markets – traders have attributed the dominant holder to a trading house.
“I do not understand what exactly they which to achieve, other than volatility and unrest in spreads,” the first trader said.
In spreads there was a small backwardation on the cash/July date of $0.60, while the benchmark cash/threes was last at a contango of $4.25.
(Editing by Martin Hayes)