London Metal Exchange (LME) warehouse volumes of copper that have tripled since May provide one of several signals that this spring’s bull market enthusiasm for the red metal has eased.
“Today, rising inventories of copper held in exchange warehouses, coupled with the global market in a surplus position, would lead us to believe that prices should trend lower,” wrote New York-based metals industry analyst John Gross in an early August edition of “The Copper Journal,” which he publishes.
“Indeed, the spot price of copper on Comex has fallen $1.14 [per pound] from $5.12 on May 21st to $3.98 on Friday,” he wrote on August 9.
LME pricing and inventory figures collected and published by Germany-based Westmetall show the exchange’s warehouses reached a recent low inventory level of slightly more than 103,000 metric tons in mid-May.
The volume of LME warehoused copper has tripled since then, with the exchange reporting some 320,000 metric tons in inventory as of this Tuesday.
A mid-August report by Pratima Desai of Reuters indicates almost 75 percent of that stockpile rests in just three facilities in Asia—two in South Korea and another in Taiwan.
Calling those exchange warehouses a “a market of last resort” for metals producers and traders in the People’s Republic of China, Desai also quotes an analyst with banking firm BNP Paribas as saying, “If you strip out exports, domestic [copper] demand in China looks to be anemic.”
As the price of copper was rising this spring, Gross was unconvinced there was a genuine shortage of the metal. “Not everyone is short of copper,” he wrote in May. “China, the world’s largest buyer, has plenty of the stuff.”
Desai says as of August, “Investors fleeing the copper market are likely to be sidelined for many months, leaving the field clear for physical players who expect demand in top consumer China and elsewhere to deteriorate over coming months and weigh on prices.”
Although copper’s highest recent price point correlated with lower LME inventory levels, Gross was among the metals observers who attributed much of the bullishness to banks making a speculation play.
In the May 17 edition of his publication, Gross wrote in part, “To our way of thinking, the volatility in copper and other metals is the result of massive speculation, whereby buying begets buying until it simply runs out of steam. We’ve been here many times before, and the story always ends in tears.”
As of this week, the LME price of copper is hovering around $9,150 per metric, or about $4.15 per pound.
Although demand for copper wiring is poised to remain strong if electric vehicles gain popularity and if alternative energy investments continue, a shortage of the red metal does not seem to be in the offing this year.
Last month, the Lisbon-based International Copper Study Group (ICSG) calculated a global surplus of the red metal of 496,000 metric tons at the end of this May.
That figure is more than double the estimated 222,000 metric tons in warehouses at the end of May 2023, with the ICSG remarking, “China’s bonded stocks are thought to have increased by about 80,000 metric tons in the first five months of 2024 compared to the year-end 2023 level.”
Courtesy : recyclingtoday.com
