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Copper Short Squeeze Rocks Metals Markets

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Bloomberg May 17 11:43 · 17.4k Views

A massive dislocation between the prices for copper traded in New York and other commodity exchanges has rocked the global market for the metal and prompted a frantic dash for supplies to ship to the US. Bloomberg Intelligence's Mike McGlone has the story.

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Transcript

  • 00:00 You see the volatility, and it could be quite stifling for some.
  • 00:03 What does it look like under the hood?
  • 00:06 Hello Sonali, it looks like it's peakish.
  • 00:09 Unfortunately, we've seen some pretty significant
  • 00:12 future Senate shenanigans.
  • 00:14 That's mostly the CME traded copper making new highs around $5.13
  • 00:19 a pound
  • 00:20 and the LME traded copper hasn't.
  • 00:22 So let's say CME traded copper is getting way too stretched a little bit long.
  • 00:27 Futures positions are in there.
  • 00:28 The thing that's unique about it is
  • 00:31 it's the curve.
  • 00:31 So it's only the front contracts are breaking out.
  • 00:34 The back ones have stayed behind and that's usually what happens when markets makes peaks.
  • 00:38 I remember silver 2011 when it made a peak around 50 bucks.
  • 00:42 It had a similar nuance.
  • 00:44 The question is duration here.
  • 00:46 Well, you're talking about shenanigans under the surface as well.
  • 00:49 I mean, part of this issue that we're seeing for traders is a massive short squeeze going on in the markets.
  • 00:54 Talk a little about the market structure dynamics we're seeing here.
  • 00:57 Well, that's the unique thing about it.
  • 00:59 In a short squeeze, you see open interest decline.
  • 01:02 But on the CME traded contract, the one that really spiked, it hasn't declined.
  • 01:06 It's really
  • 01:07 declined on the LME Kate traded contract.
  • 01:09 And I've been pointed out, if you look at management net positions, IE hedge funds, these are the leveraged traders.
  • 01:15 They're about the most long copper, about 30% of open interest in almost three years.
  • 01:20 So the market's been very long.
  • 01:22 As you pointed, it's been riding that rally.
  • 01:23 So what's happening now is some of the nuances I think of trading within the front contracts, between the back contracts.
  • 01:29 And what's unique is when you get that front contract and copper, it got to about 6% above the back price that one year back.
  • 01:37 That's the most it's done since 2008, which is a bit of a dicey number.
  • 01:42 What about the leverage under the surface?
  • 01:45 You alluded to some of the levered contracts being the most
  • 01:48 hit here really.
  • 01:49 So how big is that exposure?
  • 01:52 Yes.
  • 01:52 So
  • 01:54 right now the total net longs from hedge funds called managed money net positions
  • 01:59 as of the last reading was about 30% of open interest.
  • 02:02 That's the highest in about three or four years, right.
  • 02:04 One copper was making its its peak
  • 02:07 right before Russians invasion Ukraine and then headed lower.
  • 02:10 So it's an example of the problem the markets way very long here now and it's showing that lately put in the spike around 5:00 is tilting now that back around below below 5 around 4 or 90 at the moment.
  • 02:22 So
  • 02:22 to me the risk is that those positions might be sparked to liquidate it now needs some kind of fundamental back backing and it had that little spike to cover some of the shorts.
  • 02:31 So that's the unique thing about it.
  • 02:33 Positions are a bit long
  • 02:34 for short squeeze.