Steve – the point of interest is the spike in the LME stock – it...

Steve – the point of interest is the spike in the LME stock – it has spiked by 12,000 ton in less than half a week which appears unprecedented on the 5 year stock graph and is an anomaly by itself. There is - however - even more to this anomaly from what I will write below.

I am far from an expert in the how the LME works, but am of the understanding that it works as a trading forum where entities can trade both now and at some point in time in the future (via ‘futures’). The buyers would consist of entities that actually buy the commodity and those that speculate on the future price (let’s call these guys ‘the Buyers’ to make the question easy for all to follow). Let’s also define stock so that it is also easy for all to follow: it is the commodity sitting in warehouses.

Now, the stock is actually owned by an entity - many in fact. Stock levels are rising (which we all know from the graph) but the level of stock spiked (by the 12,000 ton identified above). The price of nickel has also been rising. One would think (going back to my high school economics days) that rising prices should have curtailed demand from the Buyers (the old price-demand curve) but it hasn’t – the Buyers continue to buy and at an accelerated rate (during the period of the price spike).

This is the puzzling bit: why?