by Metal traders in London may not be able to recover from the previous epic air force of LUNI.
However, the current LME inventory tells them that the next air force is likely to be on the road.
According to the Bloomberg report, the entire LME inventory has dropped to the “danger zone”, and the available inventory of six major contracts is at the lowest level since 1997, which increases the risk of further soaring prices from aluminum to zinc.
Goldman Sachs Group warned on Thursday that copper was “sleepwalking towards shortage”.
“We think higher prices are inevitable,” analyst Nicholas Snowdon said in an email.
And due to the large number of bookings of Trafigura group, the available inventory of zinc was reduced by more than 60% in less than three weeks.
Bloomberg quoted a person familiar with the situation as saying that since the end of March, the orders for extracting zinc from LME warehouse have jumped by more than 45000 tons, reducing its available inventory to the lowest level in more than a year.
In addition, LUNI itself still faces the risk of further turbulence.
Michael Widmer, head of metals research at Bank of America, said by telephone: at present, it seems that we are facing new pressure from LME every week.
In fact, LME inventory has started to decline since last year, because industrial activities recovered at that time, but the global logistics and shipping system is still in a downturn.
In addition, due to the soaring electricity prices in Europe, some factories have been closed for unprofitable reasons, which has also put pressure on the supply of aluminum, zinc and other metals.
After the outbreak of the Ukrainian crisis, the supply of large Russian metal manufacturers, which were originally the “pillars”, also began to be blocked, making the inventory even worse.
However, once the exchange inventory is at such a low level, it may make short positions more vulnerable to squeeze.
01 there is no delivery for short positions with low inventory because LME has always required that in physical delivery contracts, each short position held at the expiration of the contract must deliver physical metal, and the physical metal must be stored in LME warehouse in the form of registered parcels.
However, if the LME inventory is low and there are few registered metals available for short delivery, they can either bring new metals into the LME warehouse or close their positions by buying LME contracts when the global metal supply is in short supply, and rush to buy is the characteristic of short squeeze.
Although LME has recently made a comprehensive adjustment to its rules, eliminating the requirement for short position holders to deliver metal, the “price” of non delivery is quite high, and 1% of the daily contract value is paid as a fine.
After the 02 demon nickel, the market liquidity shrank and the unstable market situation has made investors and traders start to reduce their exposure.
For example, JPMorgan Chase is evaluating its business with some commodity customers.
Bloomberg analyzed that the whole process may lead to Morgan Chase deflation and reduce commodity trading activities.
In this case, the open position of the whole market has declined.
Then as liquidity shrinks, metals may face more unstable price fluctuations.
Therefore, how to avoid the possible air tight war again, LME also has a headache.
After all, the way they handled demon nickel last time has been targeted by the regulatory authorities.
On this premise, the financial conduct authority and the Bank of England will review the governance, market supervision and risk management of the London Metal Exchange.
On April 4, the financial conduct authority (FCA) and the Prudential authority (PRA) of the Bank of England issued a joint statement, planning to review the London Metal Exchange (LME) and the London Clearing House (LCH) to explore what lessons these two institutions can learn in governance, market supervision and risk management.
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Will LME pass the customs smoothly this time?..
