We wrote some weeks ago a rather tongue in cheek article about rumors of a Mr. Copper buying up stocks of copper and manipulating the market price. As we said at the time, the copper market is a hugely liquid and high volume market, you would need really deep pockets to buy enough stock to materially move the copper market.
However we recently read of an article reporting concerns that there is one single investor in the tin market who has bought up so much metal that this one investor has control over the spot price. As such the market which with an annual surplus of some 5,000 tons should be in contango (three months prices at a premium over spot prices – equivalent to the cost of finance and warehousing for three months) when in fact spot prices are a whopping US$425/metric ton higher than the three month price. The article estimates that the mystery buyer could be holding up to 90% of the stock in London warehouses, 90% being the limit before the holder is required under LME rules to lend metal to anyone who asks, at the cash price with no premium. Others believe the holder, widely believed to be a hedge fund according to the Telegraph, has wound down some of its positions and indeed the spot premium has reduced from over $700 per ton to the current level. While a few do not hold with the mystery buyer theory many do and point to not just the backwardation but the wildly volatile price over the summer months, saying the volatility comes from such an illiquid market, the one holder has a stranglehold on availability of spot metal.
The LME authorities are required to act against what are seen to be market manipulators but have so far failed to make a move. One has to say that in a market that is estimated to be in surplus to have spot prices consistently at a premium over three months is a peculiar position. But then of all the metals on the LME, tin is probably the most vulnerable to manipulation. Warehouse locations are limited and the total stocks are just 25,630 tons as of yesterday, 90% of which would only cost US$330m to buy up, small beer next to Glencore’s approx US$2,000m aluminum position.