Copper declined in London on Wednesday amid weak export data from China. This was another blow to the sketchy demand of a metal whose future looks bearish as long as weak data keeps pouring in from China. Despite increased imports of copper in China, investors have chosen to focus on missing export numbers. However, it seems that even if demand grows, the state of current supply will be unable to meet it halfway. Copper has been hoarded by two firms at the London Metal Exchange, which has artificially reduced the supply of copper and has made access to the metal harder. Inventories of copper tracked by the London Metal Exchange are the highest in the last ten years. Current amounts of copper held by LME has increased 84 percent since the beginning of 2013 to 590,175 metric tons. The increase in copper inventory in the first quarter of 2013 is twice analyst expectations.
On one hand, copper’s demand has deteriorated, but buyers of copper are paying high premiums to acquire the metal when they need it. According to WSJ sources, copper has been stockpiled by Glencore International Plc (LON:GLEN) and Trafigura Beheer BV. Apparently there is nothing illegal about hoarding metals in this way so copper is being directed to warehouses in Malaysia and Belgium in huge amounts, and most of these storage facilities are owned by the two firms.
Data from CFTC has been pointing out for quite some time now that copper futures are a crowded short position in hedge funds in the US, as reported by hedge fund monitors of BAML and SocGen. Additionally we have also witnessed an acceleration in short exposure in copper mining, manufacturing and holding companies in the past months.
Glencore International Plc (LON:GLEN) is a popular short position in London. Over 5 percent of outstanding shares are held in short bets. Glencore operates as a holding company involved in various commodities ranging from metals, agriculture and energy. The most popular funds betting against Glencore are Elliott Capital and Och-Ziff Capital Management Group LLC (NYSE:OZM). Glencore International Plc (LON:GLEN) currently has a market cap of over $38 billion. Paul Singer’s short in Glencore exceeds $270 million whereas Davidson Kempner has a short position equivalent to $418 million.
Fresnillo Plc (LON:FRES) was recently disclosed as a short position of Lansdowne Partners. Shares are down 30 percent for the year. Fresnillo Plc is involved in mining of gold, silver and other non-ferrous metals. Lansdowne has placed over $92 million on the fall of Fresnillo Plc (LON:FRES).
BlackRock, Inc. (NYSE:BLK) has held a short position in Vedanta Resources plc (LON:VED), another copper miner, since Nov 2012.
It can take as long as 25 weeks to get copper delivered to the desired location. In addition to the all-time high storage fees charged by copper stockers, acquiring the metal has become more expensive and troublesome than ever. This is already taking its toll on companies that use copper to manufacture cables and could make the industry suffer even more going further.