Secrets of the Trading Companies.
Jorge Eduardo Dyszel
Passionate Educator, Risk Management Consultant, Base Metals & Financial Guru & Coach
Weekly Newsletter – IV ???? ??????????????????????????????????????????????????? ???????March 2nd, 2024.
“We never become poorer for making less money.”
The past week in the key news (from my perspective):
·?????? Several reports showing a lower USA economic growth:
o?? Gross Domestic Product:? 3.2% - forecast 3.3%.
o?? Initial Jobless Claims: 215k - forecast 209k.
o?? Chicago PMI:? 44.0 - forecast?? 48.1.
o?? Pending Home Sales:?? -4.9% - forecast +1.4%.
o?? Michigan Consumers Expectations: 75.2 - forecast 78.4.
o?? Michigan Consumers Sentiment.:? 76.9 - forecast 79.6.
·?????? Others, in line with forecast
o?? Michigan 1- and 5-years inflation: 3% and 2.9%.
o?? Core PCE, MoM and YoY: 0.4% and 2.8%.
One of the Trading Companies Secrets
Did you know that…
·?????? The Possibility of Taking Delivery, from a London Metal Exchange Approved Warehouse, Acts as a Great Arbitrage to the Premiums on Physical Metal?
Previous Considerations:
o?? When trading physical metal you pay a lump sum known as Premium in addition to the LME base price
o?? The LME base price can vary among many alternatives: official cash, unofficial cash, the lowest of these, cash now, or an average over a certain period, etc.
o?? The Premium varies according to the ‘delivery location’.
o?? The Premiums themselves also have both a spot and a futures market, with the latter also being quoted at the LME.
o?? The pricing formula is the LME cash, average or whichever is applicable.
o?? Premiums are typically agreed upon between buyers and sellers.
o?? Premiums can be established, between buyers and sellers, on a spot basis or over a specified period (e.g. quarter, semester).
o?? The premiums are designed to cover all costs from ex works, to the final destination, including a profit margin.
So now…
What if you take a long position with your Broker and, instead of closing it, you keep it, pay for it, and request its delivery?
o?? You will receive a Warrant which will serve as the ownership title of the metal.
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o?? The Warrant will be only valid at the specific location where it was issued, determined by chance, and it will be one of the LME-approved warehouses.
o?? From that day, you will begin to incur storage and insurance costs.
Then… what should you do next?
o?? Depending on where you need the metal to be delivered, you try to choose the best possible location among the LME-approved warehouses.
o?? Request a ‘Warrant Swap’ to that location through your broker.
o?? Coordinate with a logistic company for the withdrawal of the metal and its final delivery to the required lcoation.
We are closer to the answer… be patient!
o?? Every single cost, after your decision to take the delivery - storage, insurance, material out, delivery into the port, port charges, freight, discharging, etc. will represent a lump sum.
o?? This lump sum, divided by the volume you have purchased, will be ‘Your Equivalent Premium’.
?o?? This Equivalent Premium acts as a limit to the amount your suppliers would like to charge.
?o?? This Equivalent Premium, becomes an excellent cap and thus arbitrages the Premium your supplier would want to charge.
But… there are a few number of ‘buts’ to consider, here some of them.
And this is when a Trading Company comes...
o?? The case you need finance for all your costs.
o?? The case where you need a QP (quotational period), to be discovered after your delivery (M+ X): you may always Hedge although it requires effort.
o?? The case you need a specific Metal Brand or Higher Quality than the normal
o?? The case you need a specific packaging.
o?? The case you need partial deliveries.
This is where your Supplier or a Trading Company may add value to justify its higher Premium.?
Would you dare to do it on your own?
It is 'Always Possible'
On the next Newsletter:
The Possibility of Delivering into a London Metal Exchange Approved Warehouse May Not Yield the Highest Revenue, But It Still Represents Your 'Last Recourse' Buyer?
And more…
Mysteries unveiled!
Don’t miss the next event – March 21st 2024 - 8AM – ET - USA:?