A group of industrial copper users is pressing the London Metal Exchange to reduce growing queues at warehouses that they say are contributing to supply constraints and rising fees.
The group, which includes Southwire Co. and Encore (WIRE:US) Wire Corp., the two biggest U.S. manufacturers of electrical building wire and cable, wrote to the LME this month asking the exchange to make accessing the metal easier as U.S. premiums climb, said Robert Bernstein, a partner at New York-based Eaton & Van Winkle LLP, the firm representing the companies.
“We want to see whether we can resolve things without legal action,” Bernstein said in a telephone interview. “This is a situation that has now gotten sufficiently out of hand that it should require the intervention of LME officials to see what else they can do to bring the market back to a form of equilibrium that’s fair to end-users.”
The group is awaiting response from the bourse.
“We are aware of market comment,” Miriam Heywood, a spokeswoman for the LME, said in an e-mail. “The warehouse system is under constant review, and we will communicate our responses when it is appropriate to do so.”
While LME-monitored global stockpiles have climbed to the highest since 2003, some of them are tied into so-called financing accords and are unavailable. The clogs, along with reduced scrap-metal supplies, a port strike in Chile and an outage at Rio Tinto Group’s Kennecott Utah Copper mine have combined to tighten supplies for immediate delivery, said Janet Sander, a vice-president at McKinney, Texas-based Encore.
Orders to remove metal from LME warehouses touched a record 168,200 metric tons on April 25, bourse data show. Copper premiums in the U.S., the second-biggest user, rose to 6 cents to 7 cents a pound from 5.5 cents to 6.5 cents at the end of March, according to London-based Wood Mackenzie Ltd. The surcharge is added to the price of Comex futures in New York.
“All of this is just compounded together, and the bottom line is that in order for you to buy spot copper, you’re going to have to pay a little more now,” Sander said in a telephone interview. “We’re either going to have pass it on or absorb” the increase, she said.
Copper for delivery in three months fell 1.6 percent to $7,039 a ton at 4:44 p.m. local time on the LME. Prices have slumped about 11 percent this year.
A spokesman at closely held Southwire, based in Carrollton, Georgia, didn’t return a phone call and an e-mail seeking comment on the matter.
Southwire this month asked a U.S. court to review a regulatory decision that cleared the way for BlackRock Inc. (BLK:US)’s planned exchange-traded fund backed by copper. The company is among industrial users who’ve said ETFs would leave less metal available for manufacturers, creating shortages and boosting prices. The company also opposed JPMorgan Chase & Co.’s JPM XF Physical Copper Trust, the first U.S. exchange-traded fund backed by physical metal, which won approval from the Securities and Exchange Commission in December.
“We are voicing our concern about the warehouse backlogs to the LME,” said Sander, who is Encore’s purchasing director. “All options are open doors,” she said, declining to specify what options the companies might pursue.
LME-registered copper stockpiles in U.S. warehouses are up 74 percent this year to 205,325 tons, and on April 26 reached the highest in 13 months. About 86 percent of the inventories were held in New Orleans.
“We’re open to seeing how they react and what they do,” Bernstein said, referring to the exchange. “But it’s a situation that seems to grow worse by the day. Premiums are increasing, and consumers will end up paying more because of the logjam.”
Consumers have said LME rules are also creating zinc shortages. Buyers can wait as long as 400 days to get the metal, which is used to galvanize steel, even as supply exceeds demand, according to the European steel industry’s lobby group.
The lines are forming because the metal is stuck behind orders from the same warehouses for aluminum, inventories of which are near a record. There should be minimum delivery rates for each metal in each warehouse, Brussels-based Eurofer said in a report on its website.
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