Copperfastening the market: Mystery trader stockpiles to control price
A single trader has gobbled up to four-fifths of the copper traded in London, stockpiling it in warehouses.
The unknown buyer has been building up the dominant position since at least last week, putting a squeeze on the market.
According to the rules of the London Metal Exchange (LME), the trader must lend out copper if it holds between 50pc and 80pc of the total to maintain day-to-day liquidity in the market.
The trader is currently lending at a 0.5pc premium to the cash price.
The premium for spot price copper over delivery in three months' time reached $89 (€66) in the middle of this week -- the highest in two years.
Stockpiles in London have fallen by more than a third since their levels at the beginning of the year.
LME copper was steady at $8,720 per tonne this morning, having reached a high of $8,732 earlier. A record price of $8,966 was hit in mid-November.
The large position is not the only reason the copper price is high.
There are fears of a shortfall in supply next year, as mining production is not expected to keep pace with rebounding demand following the recession.
Two US investment banks and one UK company also want to launch exchange-traded funds linked to copper, which is likely to suck demand out of the market further.
Attempts to "corner a market" have been made for centuries, and happen when an investor purchases a large enough market share to be able to influence the price of it.
Investors can do this in several ways. The easiest is to buy the commodity and hoard it.
Another way is to buy futures contracts and sell them later at a profit after inflating the price. However, very few of these attempts have ever succeeded.
Here are two examples.
- The latest mystery copper trade is not the first time someone has tried to hoard the metal. Yasuo Hamanaka, infamously known as 'Mr Copper', spent eight years in jail after confessing huge losses during more than 10 years of off-the-book copper deals that led to more than $2.6bn in losses.
Mr Hamanaka bought one million tons of copper over a decade in a desperate attempt to keep prices up.
At one point he held so much of the metal -- as much as 5pc of world supplies -- that traders dubbed him Mr Copper.
- Nicknamed 'Choc Finger', Anthony Ward cornered a huge chunk of the world's cocoa bean supply in July.
Mr Ward bought 241,000 tons of cocoa beans and now owns enough to manufacture 5.3 billion quarter-pound chocolate bars.
Mr Ward, who is worth around £36m, holds so much of the market he could force manufacturers to raise the price of everyone's favourite chocolate bars. (© Daily Telegraph, London)