LME Week is always a great time for headlines, either announcing new projects, major players’ transactions or, what the LME loves best, market rumors! Well, a Reuters report this week covered the comments made by the veteran market trader David Threlkeld, president of metals trader Resolved Inc., regarding unreported stockpiles of copper on the world market. Or rather, not on the market but hidden from the market, because if Mr. Threlkeld is correct (and not just over-imbibing on broker hospitality) the copper market could head in exactly the opposite direction that everyone else is expecting.
Not that David Threlkeld’s comments should be dismissed lightly. As the report points out, he helped blow the whistle on the $2.6 billion Sumitomo copper scandal in the 1990s, but you have to wonder where he gets his current data.
To quote his comments in Reuters: “We ran a (copper) surplus last year … an actual production surplus. We are going to run another production surplus this year because of the deliberate rewriting of statistics to turn a surplus market into what appears to be a deficit market.” In Mr Threlkeld’s opinion, there are more than 2 million tons of unreported stocks held off warrant in warehouses where they lie unreported, most notably in China where he believes up to 2 million tons could be held.
Visible global stocks have been on a downward trend since the beginning of this year as this graph shows and while there has been Chinese growth in demand this year and a return to OECD market growth, it is difficult to judge if that level of draw-down in visible inventory is entirely due to consumption or (as with some aluminum) a move to cheaper off-market warehousing.
It should be possible to estimate China’s imports — the country imports some 80 percent of its total copper requirement, according to a Reuters video interview with Andrew Driscoll, head of CLSA’s Asia research. Add to that its domestic refined metal production to arrive at a figure to compare against its finished metal consumption, any unaccounted difference could very possibly be stocks if one could believe the figures, and therein lies the problem. The copper market was in surplus last year to some 770,000 tons according to GFMS (reported in BusinessWeek) and although China’s demand growth has been in excess of 6%pa and demand has picked up in other emerging markets, has it exceeded the surplus? Admittedly there is little precise data to reliably say the draw-down on stocks is purely for end-user consumption. The LME SHFE arbitrage window, a common driver of Chinese speculative imports, has been closed for some months yet imports have continued suggesting they represent solid end-user demand.
For the time being, most of the rest of the market is extremely bullish on copper prices, believing the market to be in deficit and the supply market destined over the medium term to get tighter as mine depletion leads to reduced supply and rising prices. Who’s right remains to be seen, but without some reliable data, for a change, we are more inclined to follow the herd.
We’re interested in what copper trends you are seeing in the market. Take our brief 4 question MetalMiner Copper Pulse survey and we’ll report back the results on Friday.