80-90% of LME lead position can be held by Barclays

Barclays Capital declined to comment on Friday on market talk it was the holder of a dominant position controlling 80-90 percent of lead stock warrants and cash contracts on the London Metal Exchange (LME).

Data on Tuesday and Wednesday had shown a dominant position at more than 90 percent, while data on both Thursday and Friday showed it lower at 80-90 percent.

Two market sources, who declined to be named, said Barclays Capital held the dominant position.

"Talk around the market is it's Barclays," a trader said. "Probably not for themselves, (it) could be for a client."

A spokeswoman for Barclays Capital, the investment banking arm of British bank Barclays (BARC.L), declined to comment on whether it was holding the dominant position.

The backwardation on lead -- a premium for cash material over the three-month contract MPB0-3 -- rocketed to $80 a tonne, its highest since October 2007. This compared with a backwardation of $31 earlier this week.

There was a contango on lead of $0.5 in late December -- a discount for cash over three-month material.

LME lead for three-month delivery traded at $2,456.50 a tonne at 1336 GMT versus a close of $2,437 a tonne on Thursday.

"...with the market displaying a dominant position holder in the stocks the nearby backwardation continues to widen at odds with the rest of the market and is clouding the picture still further," RBC Capital Markets said in a report.

Cash for next-day delivery changed hands at $12.65, the highest in more than two years, signalling a lack of available supply for the metal.

STOCKS WATCHED

However, data this week showed a climb in lead stocks at LME warehouses, as market sources said the backwardation was drawing metal into warehouses. Lead stocks last fell 175 tonnes to 264,175 tonnes, having earlier this week touched their highest level since May 1995.

Data on Friday showed a dominant position holding 50-80 percent of LME lead stock warrants, while data from the previous two sessions showed no dominant positions here.

The LME has the power to step in and force dominant position holders to make metal available to other market players by imposing its lending guidelines, which are aimed at ensuring orderly markets.

Under these guidelines, if an LME member or client holds 50 percent or more of the warrants or cash positions, it should be prepared to lend at a premium that is no more than half a percent of the cash price for a day.

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