The London Metal Exchange limited the daily backwardation in zinc yesterday to one per cent of the previous days cash settlement price, LME chief executive David King announced on the floor of the exchange. The limits are effective immediately and until further notice, King said.
The LME took action in zinc one week after intervening in aluminium to unwind a similar squeeze. At that time, many market participants called for intervention in zinc. Some floor traders seemed to welcome the move, letting out a muted cheer as the announcement was made.
Those with short positions who are not able physically deliver, or borrow at or less than the daily limit will pay a penalty of that limit, King said. Those with long positions seeking to take physical delivery will be compensated in the same way.
If necessary, the clearing house will allocate physical deliveries to holders of long positions on a pro-rata basis. King also called attention to a notice released on August 6 reminding members of existing rules on abusing dominant positions which may create a disorderly market.
Daily spreads, which were little changed after the announcement, which have not yet approached the one per cent limit. Tightness is centred in September and the September/ one-day spread was offered at a $12 backwardation in the first ring, compared to $11 on Tuesday.
Meanwhile, copper bounced up from eight-month lows in quiet pre-market trade yesterday, while other metals were directionless ahead of options declaration.
Copper clawed its way back from an early low of $2,112 to a high of $2,145, up $5 despite a rise in stocks, due to options-related activity, dealers said.
