Chart 3


The owners of valuable warrants didn’t have an easy time either. Owners of physical stock use a forward LME short to hedge their price risk, and must borrow this position or deliver stock against it.


The contango is usually maximised in the short dates, and the only free warrants were for metal at the back of the queue which nobody wanted, so the one day borrow rate (i.e.“Tom-Next”) was   beyond 3months, so some stock holders borrowed their hedge short very close to prompt to maximise contango, running the risk of being caught in a backwardation.


Occasionally, a rival trader might attempt to pick up valuable warrants by accumulating a large position beyond the covered period. This trader would have   up the valuable material, so might need short term 


Nearby spreads would spike into a backwardation   holders forced to pay backwardations to retain  Mt. The would-be stock “raider” could receive  backwardation.


LME rule changes and the lurking threat of consumer legal action eventually brought the  trading teams retiring, banks selling their   


 repositioning saw spot premiums spike towards  


Charts 3 and 4 show the stocks and queues at Vlissingen and Detroit as the queues unwound.


Source: Reuters/LME


  


3. TRUMP’S TARIFFS AND RUSAL SANCTIONS     


Consumers are unwilling to take metal which could be sanctioned, so merchants have resorted to borrowing spreads in an attempt to   


 times ahead.


Rohan Ziegelaar E: metals.desk@admisi.com 


Chart 4 Source: Reuters/LME


10 | ADMISI - The Ghost In The Machine | July/August 2018


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