LONDON, May 17 (Reuters) - The copper rally turned ugly this week, morphing into a ferocious short squeeze on the U.S. contract operated by CME Group (CME.O), opens new tab.
The premium over the London Metal Exchange (LME) copper contract ballooned to more than $1,000 per ton, an unprecedented disconnect in Atlantic pricing.
ME has raised margins, opens new tab to calm the market wildness.
The yawning arbitrage should facilitate a re-direction of physical metal towards the United States but it may take time, leaving shorts little immediate option other than to roll positions forward at painful cost.
Shorts have been crushed by a wall of investment money surging into the copper market. More will follow.
CME short-position holders have been caught standing in the path of an investment freight train.
Commodity traders Trafigura and IXM are reported to be diverting metal to the United States to cover positions.
Both are big players in the physical copper market but small relative to the amount of fund money entering the market on the long side.
https://www.marketindex.com.au/news/the-copper-short-squeeze-is-happening-morgan-stanley
Morgan Stanley believes copper is currently in the midst of a “short squeeze”. A short squeeze occurs when traders who have either borrowed copper and sold it with a view to buying it back at a cheaper price, or who have used derivatives to simulate such a trade, scramble to exit their positions to avoid further losses stemming from the rising copper price.
The goal of these funds is to physically transfer copper into the USA to meet their short obligations. In theory, these trades are worked out in advance to come out profitable for the hedge fund regardless of moves in the copper price across the markets being arbitraged. But it appears that some funds miscalculated their ability to transfer copper into the US given that both Russian and Chinese metal cannot be delivered to COMEX.
s a result, these funds are being forced into the futures market to purchase the necessary contracts to cover their exposure. Translation: the sum of all these shenanigans is pushing the copper price higher.
Meaning the very short sellers being hurt by the squeeze have to make their own squeeze worse to try and cover their bets.
LONDON, May 17 (Reuters) - The copper rally turned ugly this week, morphing into a ferocious short squeeze on the U.S. contract operated by CME Group (CME.O), opens new tab.
The premium over the London Metal Exchange (LME) copper contract ballooned to more than $1,000 per ton, an unprecedented disconnect in Atlantic pricing.
ME has raised margins, opens new tab to calm the market wildness.
The yawning arbitrage should facilitate a re-direction of physical metal towards the United States but it may take time, leaving shorts little immediate option other than to roll positions forward at painful cost.
Shorts have been crushed by a wall of investment money surging into the copper market. More will follow.
CME short-position holders have been caught standing in the path of an investment freight train.
Commodity traders Trafigura and IXM are reported to be diverting metal to the United States to cover positions.
Both are big players in the physical copper market but small relative to the amount of fund money entering the market on the long side.
https://www.marketindex.com.au/news/the-copper-short-squeeze-is-happening-morgan-stanley
Morgan Stanley believes copper is currently in the midst of a “short squeeze”. A short squeeze occurs when traders who have either borrowed copper and sold it with a view to buying it back at a cheaper price, or who have used derivatives to simulate such a trade, scramble to exit their positions to avoid further losses stemming from the rising copper price.
The goal of these funds is to physically transfer copper into the USA to meet their short obligations. In theory, these trades are worked out in advance to come out profitable for the hedge fund regardless of moves in the copper price across the markets being arbitraged. But it appears that some funds miscalculated their ability to transfer copper into the US given that both Russian and Chinese metal cannot be delivered to COMEX.