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London Metal Exchange (LME) occursWpnpokerCaught the eye together.WpnpokerThe battle for aluminum inventory featured Trafigura, a world-renowned commodities trading giant, and Wall Street banks and hedge funds, including Squarepoint Capital, Citigroup and JPMorgan Chase.

On May 25th, according to media reports, Trafigura delivered a large amount of aluminum metal to LME in recent weeks, hinting at its pessimistic expectations for the future of aluminum prices.

But at the same time, Wall Street institutions, including Squarepoint Capital and Citigroup, have begun buying the stocks, betting on rising prices.

At a time when aluminum inventories are likely to be tight in the future, the market is engaged in fierce competition for these aluminum inventories worth more than $1 billion, even changing the global aluminum inventory pattern. Who can have the last laugh?

The aluminum market is about to be staged?

Trafigura has accumulated large inventories of aluminium in Klang over the past year, in part because of large contracts with Indian suppliers such as Vedanta.

Typically, traders who accumulate large inventories will see an opportunity to profit from the part of the physical premium paid by the buyer over the price of the London Metal Exchange. When demand exceeds supply, premiums for specific locations tend to rise as actual consumers of aluminium extract metal from inventory.

However, in the past two weeks, Trafigura suddenly registered about 650000 tonnes of aluminium with LME, leading to a huge increase in the number of warehousing vouchers, the largest one-day registration operation in 27 years.

Trafigura's move appeared to be based on its bearish judgment on aluminum prices in the future, while other market participants took the opposite view and quickly bought the metals and applied for extraction.

The bullish view of aluminum is gaining more and more support: LME investors, who were generally bearish on aluminum prices in mid-March, are now bullish, expecting prices to rise to their highest level in two years. The main reason behind this is that the market is expected to face a supply crunch in the second half of this year amid global production constraints and expectations of demand growth driven by China and India.

wpnpoker| After the copper closed the position, another short battle began!

But Trafigura's decision to transfer a large amount of inventory to LME has baffled many competitors in the aluminium market. Because of weak trading in the physical market, Trafigura may think that selling the metals on LME and charging some of the storage fees from future owners is the quickest and most profitable way.

However, the market situation has become more complicated with the introduction of rules on inventory overstocking by LME and long queues in the port of Klang that have caused some buyers to withdraw their withdrawal applications.

So far, bullish traders have the upper hand. LME's aluminium price has risen by about 4 per cent since Trafigura began delivery. Aluminum prices reached a 23-month high on Tuesday after Rio Tinto announced force majeure at two alumina plants in Australia.

Prior to this, there was a historic oppression in the copper market.

In addition to aluminum, the copper market has also been emptied before.

Commodity trading giant Trafigura and IXM, a subsidiary of China's Luoyang Molybdenum, are trying to buy physical copper to deliver their large short positions on the US CME exchange, media reported on May 15, citing people familiar with the matter.

Trafigura and IXM have large short positions in the COMEX copper market, which is part of the CME group, meaning they are betting on a fall in copper prices or hedging their price exposures. But did not expect COMEX copper prices began to suddenly soar, resulting in these short positions were seriously "forced short".

By May 20th, the price of COMEX copper peaked at 5 per pound.Wpnpoker.196 US dollars, up 33% so far this yearWpnpoker.5%. As of press time, COMEX copper fell to $4.759 a pound.

The reason for the emergence of New York copper is that the supply and demand of copper is tight. On the one hand, frequent supply-side disruptions have raised concerns about copper supply shortages; on the other hand, the global manufacturing recovery and energy transformation have boosted demand for copper. In addition, the construction and development costs of major mines are also increasing.

Existing copper production will decline sharply in the coming years, and the agency estimates that miners will need to invest more than $150 billion between 2025 and 2032 to expand their capital spending on copper mines to meet the industry's supply demand.

But Robert Edwards, an analyst at CRU, believes that fundamentals are not enough to explain such extreme prices.

While the fundamentals of copper supply and demand in the US do not have much support, they may not justify this extreme situation, suggesting that something else may have happened in the derivatives market.

At the same time, COMEX copper prices have risen more than the London Metal Exchange (LME), creating arbitrage opportunities for producers and traders who can take advantage of the price difference between the two places for arbitrage sales.

Citi noted in a report that arbitrage-related and pure short covering contributed to the COMEX rally, which may be difficult to sustain, and that the redirection of physical copper will ease the arbitrage imbalance, but it will take time.

Date: 2024-05-27
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