Panic short-covering ignites Comex copper as shipments fail to arrive

Credit: CME Group

Comex copper futures surged on Friday as some players bought back bearish, or short, positions to reduce their exposure due to expected shipments of copper failing to arrive in the United States, traders and analysts said.

A frenzied rally based on speculative buying sent copper futures on both Comex and the London Metal Exchange (LME) to record peaks in May, partly due to a short squeeze on Comex.

Since then copper prices have slid, partly due to expectations that shipments of material would arrive in the United States allowing the cover of exposed short positions.

Short positions can be bets on lower prices or producers hedging their output. A short squeeze occurs when parties holding such positions are forced to buy them back at a loss or deliver physical copper to close them out.

“Some participants cannot stomach the volatility and there is certainly some panic covering to avoid the moves we saw last time around,” a trader said.

“But if anything the situation could potentially be more volatile due to the lack of usual participants.”

The Comex buying has led to a wide spread or arbitrage between prices on the two exchanges, with the Comex premium doubling to more than $300 a metric ton over the past two days.

August futures on Comex on Friday climbed to a five-week high of $4.6965 a pound or $10,354 a metric ton and was up 2.5% at 1500 GMT. The market hit a record of $5.1015 a pound on May 21.

That compares to an intraday peak of LME three month copper of $10,000 and a gain of 0.7%.

“Inventory that was supposed to come to the US clearly hasn’t arrived,” said Dan Smith, head of research at Amalgamated Metal Trading.

It was unclear what was causing the delay in shipments to the United States.

The lack of shipments is evident in copper inventories in CME warehouses, which have tumbled 71% since late March to 8,947 tons, the lowest since 2008, data shows.

“People have already been burned on this once, so they’re much more cautious now, but we’re all a bit nervous it’s going to blow out again,” Smith added.

During the May short squeeze commodity traders Trafigura and IXM were looking to buy physical copper to deliver against large short positions, but it was unclear which participants were covering positions at the moment.

Comex is owned by the CME Group while the LME is owned by owned by Hong Kong Exchanges and Clearing Ltd.

(By Eric Onstad; Editing by Veronica Brown and David Evans)


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