In recent days news agencies and the trade press have raised concerns that large scale speculative trading of the spread between LME September and December delivery dates threatens to disrupt the market. Last week bids of up to 10,000 lots (50,000 tonnes) to borrow the September-December spread were reported in one trading session. The backwardation between the two dates has typically been around $800 – 850/tonne recently, an unusual situation in a market widely perceived to be over-supplied.
On Monday Bloomberg noted that tin’s open interest, or the number of futures contracts outstanding, rose to a record level. Open interest in tin futures, the least traded among the exchange’s nonferrous metals, jumped 7.9 % from the end of June to 36,281 contracts as of July 3. In addition one unidentified firm has held between 30 -39 % of total LME warrants since late January.
Market sources quoted by Reuters yesterday offered varying explanations of what is happening. "Is this a deliberate attempt to squeeze the market, an investor or investors who intend to take delivery of metal…(or) is it a government looking to take advantage of perceived cheap prices?" said Alex Heath, head of base metals at RBC Capital Markets. "It would appear to be the usual fun and games that tend to characterise the tin market," said Robin Bhar, senior metals analyst at Calyon. "It looks as if the funds are trying to pinpoint where the shorts are, trying to squeeze them." Essex-based hedge fund Ebullio declined to comment on market talk that it was behind the tightness in the tin market.
In a second report yesterday, Reuters quoted an un-named member of the LME tin committee urging the exchange to take action: "It would appear to me and most people that the backwardation is totally out of line with the reality of the market place and that it is being largely controlled by one company but possibly more," the source said. "Our concern is that the market is no longer orderly in that area”.
The LME has formal powers to force companies controlling a large proportion of warrants or contracts due for immediate delivery to lend metal at a maximum premium but does not normally intervene in futures trading. The exchange has not yet received a formal written complaint about the situation, but if it did so the case would be referred to the Financial Services Authority, Britain’s main financial watchdog.
