Stocks of copper registered with the London Metal Exchange (LME) have more than doubled in the past two months, reaching their highest level since May 2022. While an increase in inventory during the summer holidays is not uncommon, the current surge is compounded by a manufacturing recession in Europe and the United States. The abundance of copper on the market is dampening optimism that China, the world’s largest user, is experiencing an economic growth rebound.
The LME three-month copper price remains stagnant, trading at $8,300 per metric ton and remaining within the $8,120-$8,870 range that has held since June. Since mid-July, nearly 100,000 metric tons of copper have been warranted in the LME warehouse network, raising the headline stocks to 149,600 metric tons. In comparison, registered inventory was a mere 54,225 metric tons on July 12.
The summer influx of copper has been widely distributed, with deliveries arriving in Asian, European, and U.S. locations. Rotterdam and the German port of Hamburg have received 19,325 metric tons and 9,850 metric tons, respectively. In Asia, the Taiwanese port of Kaohsiung has received 14,225 metric tons, while the South Korean port of Busan has taken in 12,550 metric tons. Meanwhile, 41,100 metric tons have been placed on LME warrant in New Orleans, the highest amount among all LME locations.
Interestingly, copper stocks in Mobile, Alabama, have grown to 1,925 metric tons. This rise is notable because Mobile had not held LME-warranted stocks since January 2021, when the volume was a mere 25 metric tons. On the other hand, CME copper stocks in New Orleans have fallen by 20,395 metric tons over the same period, indicating a possible physical arbitrage between the two exchanges.
While copper demand typically softens over the summer holiday period in the northern hemisphere, this year’s increase in inventory has been unusually significant, with minimal counter-flow. Since mid-July, departures from LME warehouses have only amounted to 9,100 metric tons and have slowed considerably in recent weeks. Additionally, fresh cancellations have only totaled 725 metric tons during this period. Currently, the amount of cancelled stock awaiting physical load-out from the LME warehouse system is at a minimal 225 metric tons.
It remains to be seen how long this upward inventory trend will continue, but the collapse in short-dated LME time-spreads suggests that more arrivals may be expected. The September-October spread experienced heavy-volume action, transitioning from small backwardation to a contango of $26.75 per metric ton at the close of Thursday. Consequently, the benchmark cash-to-three-months spread also collapsed, with the cash discount widening to $65 at one point on Monday and last trading at $58.50 on Tuesday. This is a significant increase compared to the $2 per metric ton discount at the beginning of September.
While the surge in copper stocks has primarily occurred within the LME delivery system, total exchange stocks, including those registered with CME, the Shanghai Futures Exchange, and its bonded arm the International Energy Exchange, currently stand at 236,000 metric tons. This figure remains relatively low compared to historical standards and has only increased by 47,000 metric tons since the beginning of the year. Visible exchange inventory in China is modest, amounting to 99,000 metric tons, with bonded warehouse stocks assessed at 43,000 metric tons by local data provider Shanghai Metal Market.
Copper bulls argue that China’s limited inventory cover will result in higher imports if the country’s manufacturing sector experiences a rebound. However, the rapid build in LME inventory suggests that any positive impact from a recovering China will be offset by continued demand weakness and surplus metal in the rest of the world.
More detail via Reuters here… ( Image via Reuters )