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
“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
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.
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