Reuters reported that traders are bracing for a replay of the April squeeze that made copper expensive to obtain quickly, saying major trader Glencore controls almost half the inventories of the commodity held in London Metal Exchange registered warehouses worldwide. A potential rebound of demand in China, the world's top copper consumer, combined with strongly held LME stocks, could constrict the market in coming months in an even more severe version of what happened this spring. A squeeze gripped the market in April, as one entity took control of up to 90% of cash contracts and inventories on the LME, facing off against Chinese market participants who were caught with short positions. The tightness faded in May and the dominant position evaporated as Chinese copper producers shifted metal into LME Asian warehouses and copper prices were swept lower along with other risk assets on renewed fears about the euro zone. Demand in China was disappointing in the second quarter, usually a peak period for buying, as an economic slowdown hit but analysts expect a moderate revival in the H2. Mr Wiktor Bielski analyst at VTB Capital Markets in London said that "It's not a market that's particularly well supplied with metal at a time when demand globally has been pretty weak in the last six months. If you ignore the short term noise any sort of recovery in the second half would suggest that you should get a decent second half rally in copper." A combination of lacklustre demand and the European debt crisis has weighed on benchmark three month copper futures prices but nearby spreads are telling a different story. While three month copper shed 9% in the Q2 over the past week the nearby market has moved into backwardation in which cash prices are higher than three month futures, indicating tightness. The premium of cash copper over the three month price was USD 8 per tonne compared to a peak of USD 155 per tonne in April at the height of the squeeze, the highest in 3-1/2 years. The backwardation has coincided with the reappearance of a large position in copper after having disappeared for many weeks. LME data showed that 40% to 50% of inventory warrants are controlled by one party. Warrants are ownership documents for LME stocks. The LME begins reporting positions when one party moves above 30 percent and when the combined inventory and cash position rises above 50 percent, it is regarded as dominant. At that point, the exchange applies a mechanism to avoid disorderly markets and limit the exposure of short position holders. Under these LME lending guidance rules a dominant position holder must supply metal at little or no premium to parties with expiring positions.

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