doesn’t limit how much metal a single trader may hold in its warehouses, and says that it has mechanisms in place to prevent market squeezes—a situation in which holders of a large share of the supplies use their position to jack up prices.
Some traders say the concentration of so much copper under one firm’s control is already driving up prices. It costs about $72 more per ton to buy copper for delivery today than for delivery in three months.
“There’s no reason for anyone to be holding 70% of the stocks of the commodity,” said Jessica Fung, head of Commodities Metals at BMO Capital Markets.
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The Red Kite metals fund posted returns of just over 50% in 2013 after a well-timed switch from a short to a long position in the copper market around the time that prices posted their lows for the year, well-placed sources told Metal Bulletin.
Simply put, they were the market (buying it up in hopes to corner the market):
The long position delivered returns as copper prices rebounded to finish the year up nearly $700 from its 2013 low, but Red Kite also made strong returns on physical inventory and spreads as copper premiums jumped in Asia and the LME forward curve moved into backwardation, market sources told Metal Bulletin.
“The Red Kite switch was definitely up there as one of the big trades of the year; the volumes were huge,” a source active in the copper market told Metal Bulletin.
At the time, sell-side analysts in particular were turning strongly bearish on the copper market, reacting in part to lagged evidence of the slowdown in demand that prompted Red Kite to run short positions around the start of the year, sources said.
“Good data is very hard to come by in the copper market, and at the time I think a lot of people were trading looking in the rear-view mirror,” one observer of the company told Metal Bulletin.
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Summing it all up – Is Red Kite the next Amaranth?
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The irony of someone cornering another metals market a week after the death of Nelson Bunker Hunt is not lost on us.
This article is brought to you courtesy of Tyler Durden From Zero Hedge.