London 24/05/2016 - Availability of copper in LME-registered sheds tightened in New Orleans on Tuesday - on-warrant material fell to just 32,425 tonnes, the lowest since December 2012.
Around 20,000 tonnes have been freshly cancelled in this location since the start of April, including 9,000 tonnes today. There are just 14,325 tonnes of cancelled warrants in the US city, according to LME data, which is two days in arrears.
Total copper stocks there have fallen 34,475 tonnes to 46,750 tonnes from 81,225 tonnes at the start of the year when just 1,300 tonnes were booked for removal.
The metal is not believed to be heading to the CME - Comex copper stocks at 59,439 tonnes are down 12,479 tonnes since the start of April. Instead, market observers have attributed the decline in LME inventories to a large trading house attempting to tighten the market.
"The usual copper suspect is having a play. The spreads had started to ease but with more material moving off-warrant the likelihood of a stronger back increases," an LME trader said.
The benchmark cash/threes was last at a backwardation of $23, having been as low as $2 last week. As well, warrant holding data showed a re-emergence of a dominant holder on the 'Tom' date at 50-79 percent.
"Someone wants the spreads to stay tight and that is what we are seeing here," another trader said.
Cancelled warrants also rose in other locations, principally in Johor. LME sheds in Asia have attracted attention since April when the trend in the year to date of metal moving from East to West reversed.
Since last month, almost 50,000 tonnes have arrived in the LME system in in Asia although 27,000 tonnes have been cancelled in that time. These moves have centred on Singapore.
"The arrivals are being followed by swift departures, so while there has been a steady increase since April the global headline inventory is actually not that much higher than we started with. The only difference is that now the locations have switched," a trader said.
Indeed, Asian LME sheds hold more copper stocks that any other location at around 85,000 tonnes followed by around 53,000 tonnes in the US and around 19,000 tonnes in Europe. At the start of April, the US held around 72,000 tonnes, Asia 41,000 tonnes and the EU 30,000 tonnes.
The shift in the market's make-up reflects the closure at the end of March of what had been a favourable arbitrage window between the SHFE and the LME. Coupled with improved LME Asian warehouse incentives and low freight rates, this is attracting metal from the SHFE - hence the steady drip-feed into LME sheds.
SHFE copper inventories dropped 10 percent last week although it still holds more than its counterparts at 257,334 tonnes.
"With LME warehouse incentives heard at around $50-60, then the drawdown in SHFE points to the likelihood that most of this is not being used but is coming the LME's way," Société Générale analyst Robin Bhar said
Still, not all were convinced that more copper will arrivals - Macquarie's Vivienne Lloyd believes most arrivals have already taken place.
Copper prices slumped to a three-month low this week below $4,600. It was last at $4,596, up $34 on Monday's close. Still, take-up has been unexceptional - fewer than 11,000 lots have changed hands on Select so far.
"It could be that the falling prices for copper are due to traders anticipating big stock arrivals and that is why prices are down. If the market knows it is coming, it won't wait until it appears. We could see more lows ahead of expectations of more metal arriving," Bhar added.
(Editing by Mark Shaw)