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Closer look at London Metal Exchange aluminum prices reveals anomalies

Section: Daily Dispatches

By Pratima Desai
Tuesday, March 15, 2016

LONDON -- A first glance at aluminum prices on the London Metal Exchange yields few surprises, yet a closer look often reveals anomalies caused by one market participant holding large amounts of metal.

Sources at commodity trading houses, warehouses, producers, brokers, and banks say recently one such company is U.S. bank JPMorgan. Others have done so in past.

JPMorgan declined to comment.

"There are no position limits" on aluminum contracts "as such on the LME. If you are financing physical material, there are no limits," a metals analyst said. "The LME is a physical market. No rules have been broken."

While allowed under LME rules, holding a large, sometimes dominant position can to an extent have an influence on prices in the short term for contracts that will soon reach maturity.

The LME declined to name any dominant position holders but said it "would seek additional information from market participants regarding activity that raises concern."

The recent situation has left short position holders or sellers of metal for future dates, which could be bets on lower prices or hedges for physical holdings, having to pay more to buy back and roll positions forward.

"JPMorgan have been doing this on-and-off for a long time. The backwardation (or premium) doesn't accurately reflect oversupply," a source at a commodity trading firm said. ...

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