Washington, 25 March 2010

A London Metal Exchange official on Thursday assured the top U.S. futures regulator that the exchange, the world's largest copper futures market, has enough metal on hand to prevent a physical short squeeze on the industrial metal.

Diarmuid O'Hegarty, London Metal Exchange's deputy chief executive, told a hearing held by the U.S. Commodity Futures Trading Commission (CFTC) that sizable warehouse turnover for copper shows the physical metal is amply available in the market.

The CFTC is mulling whether to crack down on speculators in markets of finite supply, like energy and metals. [ID:nN25212518]

"I think that supply is not one of the issues," O'Hegarty said. "We've put a lot of work over the past 100 years to try and learn from the various issues in the market. Over the years, what we've ended up with is, I think, as good as it gets."

O'Hegarty said his exchange has sufficient tools to guard against a physical short squeeze and over-concentration in copper.

LME statistics showed about 5 percent of all contracts resulted in a warrant changing hands, and of those warrants, only 5 percent result in metal going in or coming out of a warehouse, he said.

Concerns that there is not enough metal to meet demand is unfounded because "the trading actually reflects the available supply of physical metal in the market," he said.

O'Hegarty did not comment on supplies of other industrial metals trading at the LME.

In his presentation, O'Hegarty said that LME copper turnover was about 664 million tonnes or $3.4 trillion in 2009, about 7 percent below 2008 levels.

About 55 percent of copper futures traded globally in 2009 went through the LME, he said.

While the LME is the largest exchange, its copper stocks have decreased 14 percentage points through 2009 as metal stocks rose at the Shanghai Futures Exchange and COMEX, he said.

Implementing position limits for copper would be difficult because of the fluctuation of available supplies during market cycles, O'Hegarty said.

Ends --