At a time when copper stockpiles are rising to the highest levels in a decade, manufacturers are paying the biggest premiums for the metal in as much as seven years.
Two reports, one from the Wall Street Journal and the other from Bloomberg, show financing deals are locking up supply and extending lines at warehouses.
The reports say that while inventories tracked by the London Metal Exchange more than doubled in the past year and supplies exceed demand for the first time since 2009, getting copper is becoming more expensive and taking longer. Buyers in Shanghai pay $135 a metric ton more than LME futures, up from $55 last year, Metal Bulletin data show. Luvata Malaysia Bhd., a circuit-board parts maker, stopped buying from local LME stockpiles after waiting times rose to three months from three days at the start of 2012.
That means manufacturers may not be reaping all the benefits of the 28 percent slump in prices since they reached a record two years ago. A big reason is because financing accords are curbing access to metal. As much as 30 percent of LME-tracked reserves are tied up in the agreements, Societe Generale SA estimates. About 84 percent of stockpiles are now concentrated in three locations, lengthening lines just as supply from mines is constrained by disruptions including a port strike in Chile and landslides in Utah and Indonesia.
“Premiums are up, and they’re up substantially,” said Rodney Kent, chief executive officer of Camden, New York-based International Wire Group Holdings, Inc., which had sales of $734 million last year. “You used to be able to clear an order and get an off-take in a matter of days, and now it can be a matter of months.”
Copper for delivery in three months, the LME’s benchmark, fell 7.7 percent to $7,317 a ton this year, entering a bear market in April. Goldman Sachs Group Inc. expects a decline to $7,000 in 12 months. The Standard & Poor’s GSCI gauge of 24 commodities dropped 3.7 percent since the start of January as the MSCI All-Country World Index of equities rose 9.6 percent. A Bank of America Corp. index shows Treasuries lost 1 percent.
Global output will rise 4.3 percent to 21.1 million tons this year as demand expands 2.2 percent to 20.9 million tons, Standard Bank Group Ltd. estimates. Supply fell short of consumption in each of the previous three years, according to data from the Lisbon-based International Copper Study Group.
Glencore Xstrata Plc, Goldman Sachs, JPMorgan Chase & Co. and Trafigura Beheer BV bought storage companies in 2010, with the acquisitions meaning that they now control more than half of the 700-plus sheds in the LME’s network. Stockpiles tracked by the bourse rose 91 percent to 611,125 tons this year, of which 514,100 tons were held in New Orleans, the Belgian port of Antwerp and Johor, Malaysia.
The three locations stored about 25 percent of LME inventory a year ago. Combined stockpiles excluding New Orleans, Johor and Antwerp are at the lowest since August 2007, compounding the supply crunch for consumers.
Financing typically involves the purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, where prices rise into the future. The transactions are being helped by record-low borrowing costs after central banks cut interest rates to boost economic growth. Three-month copper is about $30 more expensive than metal for immediate delivery, compared with an average discount of $5.44 last year.
Orders to withdraw metal from warehouses rose more than fourfold this year, prolonging waiting times. Assuming that all copper in New Orleans is held by one storage company, it would take at least five months to get metal out, from about two weeks a year ago, according to Macquire Group Ltd.Tagged with tED