Copper is supposed to be the commodity with a PhD.
That is, copper has always been seen as so ubiquitous throughout the global economy that its moves, like the Aussie dollar’s, are often taken as a proxy for traders views on global growth.
So copper’s resilience above $3 a pound over the past 4 months has been a stand-out price performance which has had traders scratching their heads.
But the Wall Street Journal (WSJ) this morning might have the answer to this resilience in the copper price. The WSJ reports that, “A single buyer has snapped up more than half the copper held in London Metal Exchange warehouses.”
The report adds that:
On several occasions in the last month, this buyer held as much as 90% of the world’s copper stored in LME-licensed warehouses, equal to about 140,000 tons, or enough to make the copper parts of the Statue of Liberty more than 1,700 times. As of Wednesday, the buyer owned between 50% and 80% of copper held in warehouses, according to the most recent exchange data.
According to the WSJ, the buyer is a commodity hedge fund called Red Kite but a position of this size is remarkably large in the context, not only of the LME, but overall global copper markets in a slowing economic environment.
“There’s no reason for anyone to be holding 70% of the stocks of the commodity,” Jessica Fung, head of Commodities Metals at BMO Capital Markets told the WSJ.
But the trader in me thinks that the fluctuations in the size of the holding suggests that the buyer/holder is protecting some sort of position or option level below market. Buying into a weak market and then selling as a little strength returns.
Equally as this chart of US copper priced in dollars per pound shows (rather than the LME price per tonne), this might be a huge bet from the hedge fund that copper is about to rally, and rally hard.
You can read the full WSJ article here.