Hong Kong 15/06/2016 - Additional copper will be delivered into London Metal Exchange warehouses as major traders attempt to push the market into a deeper contango, sources said on the sidelines of LME Week Asia in Hong Kong.
Sources estimate that another 30,000-50,000 tonnes of copper cathodes is slated to be put on warrant. But the timing will depend on when the arbitrage between the London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) opens.
“We have another 10,000 tonnes to deliver in the coming weeks - it’s not over yet,” said a trading source.
Premiums on CIF Shanghai basis have been trading sluggishly at $40-55 per tonne since early April because the LME/SHFE arbitrage window has been closed. Additionally, the LME backwardation has eaten into profit margins.
Last week, 61,750 tonnes of copper was delivered into LME warehouse sheds in Singapore, South Korea and Taiwan - among which Singapore received 39,650 tonnes. LME stocks have risen to 210,675 tonnes with 69.9 percent stored in Asian warehouses.
Following these deliveries, the LME cash/threes switched to a small contango last Tuesday from a backwardation of $28 at the end of May.
Most of the delivered metal came from Swiss trading company Trafigura and another trading house, while a small amount came from Chinese smelters, sources said.
“(Trafigura) delivered into the Steinweg warehouse in Singapore,” said a trader in Asia.
Trafigura declined to comment.
The metal was not fresh cargo but rather was material that was already stored in non-LME sheds in the area, warehouse sources said.
“They put it back on-warrant in big chunks to move the curve into a contango,” said a warehouse source.
Meanwhile, deliveries out of the LME warehouses totalled around 10,450 tonnes so far this week and the benchmark cash/threes spread narrowed to a contango of $11.75, down from $14.50 last Friday, which was widest contango since December 2015.
“It will be a tug of war between those two forces, and whether the contango will stay totally depends on the amount of metal being moved in and out,” said a third industry source.
(Edited by Tom Jennemann)