Furthur volatility looms in nonferrous markets

The soaring price of copper has been joined by a sudden influx of warehoused aluminum as factors pointing to the continuation of volatility in the nonferrous metals markets.

The price of copper continued its upward trend in the second week of May, with the red metal spending the weekend of May 11-12 on COMEX valued at up to $4.66 per pound (as a futures price).

On the London Metal Exchange (LME), copper enters trading May 13 carrying a cash settlement price of $4.51 per pound and a three-month contract value price of $4.56 per pound.

New York-based metals analyst John Gross, publisher of The Copper Journal, refers to the price of copper in his May 10 as being “in the Twilight Zone.”

Gross says the contango position (with the cash price lower than the forward price) of copper on exchanges indicates it is “readily available” on the global market.

That circumstance causes Gross to look at financial speculation in the copper market. “So, if the market isn’t tight, what else is going on? We can only imagine someone with deep pockets is attempting to manage the market, but that seems a bit too farfetched—or does it?”

The analyst draws a potential comparison to a copper bull market in 2005 and 2006, a stretch when he says the copper price was “hit back and forth like a tennis ball in a fierce competition.” That runup led to a price plunge in 2008 that “was a sad chapter for just about everyone.”

Regarding current volatility, Gross says there is no guarantee it is a repeat performance of what occurred almost 20 years ago.

“To state the obvious, this is not good for the global copper industry," Gross says. “Given the way copper is behaving, we wonder if someone is on the wrong side of this market.”

Aluminum has not experienced the same price spikes seen in the copper market, but the impact of a limited global end market for Russian aluminum has introduced some guesswork into that market as well.

One month after the U.S. and United Kingdom governments announced restrictions on the handling of Russian aluminum on COMEX and LME, the LME witnessed a major infusion of the light metal into its warehouse network.

Gross says on Friday some 424,000 metric tons of aluminum were added to LME inventories on a single day, nearly doubling the LME warehoused volume to about 904,000 metric tons.  

“We shake our heads in despair that this is allowed to happen,” Gross says. “Are the regulators asleep? To put this into perspective, using Friday’s price of $1.14 per pound, we are looking at $1.066 billion worth of metal showing up. Who’s got that kind of money sitting in their checking account?” the analyst asks.

A May 10 report by Julian Luk of Reuters quotes a trader who says the delivery was unlikely made for market reasons (to answer a spike in demand) but that nonetheless the contango situation for aluminum’s price indicates traders may have factored into aluminum’s price that such a dump of (possibly Russian origin) material was likely.