At a time when copper stockpiles are rising to the highest level in a decade, manufac- turers are paying the biggest premiums for the metal in as much as seven years as financing deals lock up supply and extend lines at warehouses.

While inventories tracked by the London Metal Exchange (LME) more than doubled in the past year and supplies exceed demand for the first time since 2009, getting copper is becoming more expensive and taking longer. Buyers in Shanghai pay $135/t more than LME futures, up from $55/t last year, Metal Bulletin data show.

Luvata Malaysia, a circuit-board parts maker, stopped buying from local LME stockpiles after waiting times rose to three months from three days at the start of 2012.

Manufacturers may not be reaping all the benefits of the 28% slump in prices since they reached a record two years ago because the financing accords are curbing access to metal. As much as 30% of LME-tracked reserves are tied up in the agreements, Société Générale estimates. About 84% of stockpiles are now concentrated in three locations, lengthening lines just as supply from mines is constrained by disruptions, including port strikes in Chile and a landslide in Utah.

“Premiums are up, and they’re up substantially,” says Rodney Kent, CEO of New York-based International Wire Group Holdings, which had sales of $734-million last year. “You used to be able to clear an order and get an offtake in a matter of days, and now it can be a matter of months.”

Copper for delivery in three months, the LME’s benchmark, fell 7.7% to $7 323.25/t this year, entering a bear market in April. Goldman Sachs Group expects a decline to $7 000/t in 12 months. The Standard & Poor’s GSCI gauge of 24 commodities dropped 4.4% since the start of January as the MSCI All-Country World Index of equities rose 9.5%. A Bank of America index shows treasuries lost 1%.

Global output will rise 4.3% to 21.1-million tons this year as demand expands by 2.2% to 20.9-million tons, Standard Bank Group estimates. Supply fell short of consumption in each of the previous three years, according to data from the Lisbon-based International Copper Study Group.

Glencore Xstrata, Goldman Sachs, JPMorgan Chase & Co and Trafigura Beheer BV bought storage companies in 2010, with the acquisitions meaning that they now control more than half of the 700-plus sheds in the LME’s network. Stockpiles tracked by the bourse rose 91% to 611 125 t this year.

Financing typically involves the purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, where prices rise into the future. The transactions are being helped by record low borrowing costs after central banks cut interest rates to boost economic growth. Three-month copper is about $30/t more expensive than metal for immediate delivery, compared with an average discount of $5.44/t last year.

Orders to withdraw metal from warehouses rose more than fourfold this year, prolonging waiting times. Assuming that all copper in New Orleans is held by one storage company, it would take at least five months to get metal out, from about two weeks a year ago, according to Macquarie Group.

Most manufacturers get metal on long-term contracts with suppliers, using LME warehouses to buy metal, if needed, says Robin Bhar, an analyst at Société Générale in London. Luvata Malaysia uses about 30 000 t/y and, until 2012, 90% came direct from annual contracts, says Michael Nordgren, the MD of the local unit of Luvata. Nexans, the Paris-based cable maker that buys 450 000 t/y, says it gets less than 2% from the spot market.

The premium in the US jumped 52% in the past year to $176, the highest since 2007, while in Europe it rose 60% to $120, the most since 2006, according to data from Metal Bulletin. International Wire Group has seen premiums climb about 25% in the past year and the LME’s warehousing system is not working for consumers, says Kent.

Premiums were further boosted by supply disruptions such as a landslide in April at the Bingham Canyon mine, in Utah, and port strikes in Chile, the largest producer. Sterlite Industries India was ordered in March to shut its copper smelter in southern India following a gas leak and Arizona-based Freeport-McMoRan Copper & Gold halted production at its mine in Indonesia in May after a tunnel collapsed.

The LME, bought last year by Hong Kong Exchanges & Clearing for $2.2-billion, has sought to ease the congestion by raising the minimum amount that must be delivered by those with the biggest stock- piles. The bourse also added an extra minimum delivery last month for warehouses where orders to withdraw metal exceed a certain threshold.

Warehousing policy is always being reviewed and the LME is monitoring the impact of the changes, says Miriam Heywood, a bourse spokesperson.

The LME has no control over who owns storage companies and the lines at sheds are not being formed by those seeking physical supply, says Diarmuid O’Hegarty, the bourse’s COO. The exchange’s primary role is as a venue for price setting, not a market of last resort for consumers needing metal, he says.

Rising premiums, stockpiles and extended waiting times are also features of the aluminium and zinc markets. Société Générale estimates that as much as 80% of aluminium inventory tracked by the LME, as much as 60% of zinc and as much as 50% of nickel are tied up in financing agreements.

A group of industrial copper users wrote to the LME in April, urging the exchange to ease the congestion. The group, including Southwire and Encore, the two biggest US makers of electrical building wire and cable, is seeking to resolve the issue without legal action, says Robert Bernstein, a partner at New York-based Eaton & Van Winkle, the legal firm representing the companies.

“The main casualties will be the consumers,” says Société Générale’s Bhar, who has covered metals markets for about a quarter of a century. “Historically, higher stocks, higher supply, would result in lower premiums. But we have circumvented the normal laws of economics.”