Column: Top five contrarian commodity scenarios for 2025
Overall, the first part of 2025 is likely to be defined by a period of uncertainty.
Trafigura Group withdrew a significant proportion of copper that’s been pulled from London Metal Exchange warehouses, contributing to wild swings in prices, according to people familiar with the matter.
The drawdown has made the trading house the talk of the copper market, helping to drive available stocks to the lowest since 1974 and pushing a key spread to the highest on record. It’s also helped to spur outright copper prices higher, with benchmark futures up about 13% since the start of the month and approaching record highs set in May.
It’s not unusual for physical traders to withdraw metal from the exchange to ship to their customers, and Trafigura isn’t the only trading house to have taken metal off the exchange in recent months, the people said. And the move comes against a backdrop of very low inventories globally.
Still, total requests to withdraw more than 150,000 tons of copper from LME warehouses in the past two months have all but drained the available stocks on the exchange, and Trafigura represents a significant proportion of those, the people said.
A spokeswoman for Trafigura declined to comment.
The LME responded Tuesday to the dramatic moves in copper by adjusting rules governing the market, including by imposing limits on the shortest-term spreads. The changes were made “to maintain continued market orderliness and avoid the development of an undesirable situation,” and are intended to be temporary, it said.
The exchange took the steps after the spread between copper for immediate delivery and copper for delivery in 3 months blew out this week to more than $1,000 a ton, the highest in records going back to the 1980s, according to the LME.
The move in LME stocks shifted the market sentiment over the course of last week, as traders gathered in London for LME Week, said Citigroup Inc. analyst Max Layton.
“The bullish physical sentiment for copper intensified through the week amid the sharp decline in LME on-warrant stock levels,” he said, referring to metal that’s not already earmarked for withdrawal. “Prior to this, the physical backdrop to copper had seemed much more benign then the likes of zinc.”
During the pandemic, Trafigura has emerged as one of the most high-profile bulls in the global copper market, with head trader Kostas Bintas predicting that prices will hit $15,000 in the coming years as the industry witnesses a new supercycle underpinned by booming demand in electric vehicles and renewable energy.
Even with macroeconomic headwinds mounting during a global energy crunch, Bintas said earlier this month that rapidly dwindling stockpiles were undergirding the outlook for prices. So far, the surge in power markets has had a disproportionate impact on supply, while firm demand has added to the strain on global inventories, he said.
Trafigura traded 4.4 million tons of copper last year, one million tons more than its largest rival, Glencore Plc. After years of intense competition, it overtook Glencore as the top trader in 2019, and has since extended its lead as the latter’s volumes have shrunk.
(By Jack Farchy and Mark Burton)
Comments