[miningmx.com] — THE American investment bank JP Morgan is the mystery trader that grabbed more than half the copper on the London Metal Exchange (LME), The Daily Telegraph – a UK broadsheet – reported on Saturday.
The $1.5bn (£1bn) trade was described in the LME’s daily update as “between 50pc and 80pc” of the 350,000 tonnes in reserves. This pushed up the price for the immediate delivery of copper to $8,700 – its highest level since the financial crisis in October 2008.
A high premium on the spot copper price normally reflects fear of a shortage of the metal, which is in hot demand across the world as a vital component in a mass of products from electrical gadgets to wiring.
The Daily Telegraph reported a source close to the situation said that JP Morgan had bought the copper contracts, adding that amount is closer to the “lower portion of the range” disclosed by the LME.
Traders said JP Morgan’s name had been circulating the market all day as the most likely buyer, especially since it is about to launch a physically-backed “exchange-traded fund” (ETF) in copper imminently.
“The story is that they’re positioning themselves in front of the ETF. There’s been a lot of speculation it’s them,” a broker was quoted.
Traders noted that there was no physical shortage of copper in the markets but that fears of a squeeze have persisted ever since a raft of investment banks announced their intention to launch ETFs this autumn.
Last month metal traders wrote to the Financial Services Authority (FSA) claiming that licensing the funds, which are also likely to be launched by BlackRock, Goldman Sachs and Deutsche Bank, may amount to “approving the next financial bubble”.
It is estimated that if the copper funds are fully subscribed they would be looking to buy more than half the total stocks in LME warehouses.
Traders’ concerns are based on the ETF model that will require the investments to be backed by physical metals, such as copper, lead, aluminium and nickel, rather than paper assets offered by futures contracts, according to the report.
“There isn’t a huge buffer available for the market. The supply situation can quite easily tighten in copper,” Daniel Major, a metals analyst at RBS, was quoted.