LONDON Cash-date tightness has returned to the London Metal Exchange (LME) lead market.
You'd be forgiven for not noticing. It's been more of a caress than a throttle.
Not strong enough to leave a mark on the three-month price, which has succumbed to the same weakness playing out across the base metals board.
Not even strong enough to pull the benchmark cash-to-threes spread into backwardation, although the contango has noticeably narrowed. The spread was valued at $8.5 per tonne on Thursday, compared with $25 this time last month.
No repeat of the vicious squeezes that roiled the LME lead market back in 2011.
But those short of "tom-next", the shortest-dated spread in the LME's date system, have felt the pressure.
"Tom" traded out $7 per tonne backwardation on Tuesday morning and again to $6 backwardation on Wednesday morning.
You didn't need to look far to understand what happened earlier this week, which marked the passing of the LME third-Wednesday May prime prompt date.
The Exchange's market positioning reports have shown one player holding cash and "tom-next" positions equivalent to more than 90 percent of open LME lead tonnage.
That sort of dominant position, by the way, is subject to the Exchange's lending guidance. "Guidance" is something of a misnomer. Failure to observe the "guidance" is a straight red card from a regulatory perspective.
As of this morning all has returned to normal. "Tom" is trading back at level and the dominant player has disappeared from the latest Exchange report.
"For now", because the underlying cause of this mini-squeeze seems unlikely to go away any time soon.
The key issue here is the rapid dwindling of LME-registered stocks.
As recently as the start of December last year there were more than 360,000 tonnes of lead sitting in LME-registered sheds.
Since then, though, they have ground steadily lower. As of today's report the total has fallen to 240,875 tonnes.
Even that, though, is only half the story.
Open tonnage stands at just 85,575 tonnes. Everything else is in the cancelled category, earmarked for physical drawdown.
It's the open tonnage total that counts when it comes to trading on the LME because that, rather than the total figure, is the true liquidity base. It's the open tonnage, not the total figure, against which dominant positions are measured.
And you'd have to go all the way back to June 2009 to find a lower open tonnage level in the LME lead market. Back then cancelled tonnage was negligible, just 75 tonnes.
In days gone by such a high level of cancelled tonnage in the LME system, currently standing at 64.5 percent of the total, would have been an unambiguous bull flag, signaling underlying deficit in the physical market.
And there is a case to be made that the "real" lead market is tight.
We're just coming out of a particularly protracted cold Northern Hemisphere winter, the "kill season" for automotive batteries, the key end-use sector for lead.
Battery-makers, in theory at least, should be sitting on depleted stocks, leaving them vulnerable to unexpectedly strong order-flow in terms of raw materials.
Moreover, there's been a major supply outage in the form of Exide Technologies' forced closure of its 90,000-tonne per year Vernon recycling plant in California on environmental grounds.
But it's not a shortage of refining capacity that has been the problem in the U.S. in recent months. It's been too much capacity chasing too little scrap.
And metal supply elsewhere is being boosted by the return from moth balls of Glencore Xstrata's Portovesme smelter-refinery in Italy.
So, while there is a case to be made that the physical market is relatively tight, it's almost certainly not as tight as implied by LME stocks.
The International Lead and Zinc Study Group, for instance, assesses the global refined lead market as being in small 17,000-tonne deficit over the first quarter of 2013.
Compare and contrast with the 56,700-tonne decline in LME stocks over the same period. And with the further 21,000-tonne decline since the start of April. And with the 155,300 tonnes in the LME's cancelled warrant departure lounge.
Physical market deficit seems highly unlikely to be the sole driver.
Stocks are either being moved off market under financing deals or they are merely being shuffled by trader-warehouses.
It's worth noting that the single largest concentration of cancelled tonnage in the LME warehousing system, 62,875 tonnes, is at Antwerp.
Most of the rest of it is split between Johor and Port Klang in Malaysia, Detroit in the U.S. and Vlissingen in the Netherlands. Only Port Klang might be deemed a neutral zone in the current LME "warehouse wars".
None of which matters that much if you're holding short positions on the LME.
Where the cancelled metal is going is of secondary importance to how much open tonnage there is in the system.
The less there is, the greater the chances for more cash-date pressure such as has been seen this week.
The LME's third-Wednesday June prompt date (June 19) will be the next potential flash point.
The Exchange's futures banding report shows three longs facing off against two shorts.
In this report positions are measured not against open tonnage but against open interest, currently standing at 22,521 lots, or 563,025 tonnes, on that June date.
The combined positioning of the longs is somewhere in a range of 113,000-225,000 tonnes and that of the shorts 84,000-169,000 tonnes.
Even if June passes peacefully, July is even more interesting with 6 longs lined up against 6 shorts.
So don't worry if you didn't notice the mini-squeeze on May. Unless open tonnage rebuilds and soon, you'll almost certainly notice the next one.
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(Andy Home is a Reuters columnist. The opinions expressed are his own)
(Editing by James Jukwey)