Investment funds are causing artificially high prices and volatility in the copper market, according to leading metals expert
(25 March 2010) Luvata, the global metals and manufacturing specialist, is calling for measures to be imposed to curb artificial spikes and volatility in the price of copper. In front of an audience of senior industry figures, a spokesperson for the company said the imposition of higher initial margin requirements would protect the stability of the price from the activities of commodities trading by investment funds.
On behalf of the Copper and Brass Fabricators Council, Inc., Jeff Burghardt, Vice-President for North American Procurement and Global Utilities for Luvata, delivered compelling testimony before the Commodity Futures Trading Commission (CTFC) calling for changes to limit the unprecedented volatility and prices that have been seen in the copper market.
“In the last years, the price of copper has increased over 100% while, at the same time, the quantity of material stored in warehouses has also increased substantially,” states Jeff Burghardt.
“While the copper market was in a surplus, the price more than doubled. This clearly suggests a disconnect between fundamentals and price. Although commodity markets were established to be the benchmarks for establishing prices for the underlying commodity, today it seems as though they have become primarily investment vehicles, with prices often having little correlation to costs or fundamentals.”
“We believe that if investment funds were to have smaller positions in the markets, it would greatly reduce the volatility and bring prices more in line with fundamentals and costs. These results would be beneficial to our industry, our customers and the economy in general,” states Burghardt.
“Although Luvata is a staunch advocate of the CTFC looking to limit the impact of investment funds in the commodity market, we believe that increasing initial margin amounts charged to investment funds will be a more effective solution to the problem. We would not want to see position limits put on hedgers or see the initial margin changed for this group either. Futures markets are critical for us to use in establishing prices and being able to manage the price risk in our business. We use futures markets as necessary in our day-to-day business to hedge our price risk and is it critical we can do this in a cost-effective manner,” explains Burghardt.
Over the last few years the record high prices and volatility of the markets have caused major challenges for the copper industry, including increases in working capital and, even more damaging, substitution to other materials such as aluminium or plastic.
The availability of copper units at commercially viable prices is absolutely critical to the industry.
Luvata, as a long-time member of the Copper and Brass Fabricators Council, along with 16 other member companies produce over 80 percent of all copper and brass mill products produced in the United States. These products are used primarily in the automotive, construction and electrical/electronic industries.
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Luvata is the leading international metals supplier of solutions, services, components and materials for manufacturing and construction. Luvata’s solutions are used in industries such as power generation, architecture, automotive, transport, medicine, air-conditioning, industrial refrigeration, consumer products and construction. The company’s continued success is attributed to its longevity, technological excellence and strategy of building partnerships beyond metals. Employing over 7,000 staff in 18 countries, Luvata works in partnership with customers such as Siemens, Toyota, CERN, Shaaz, and DWD International.