Is the Copper Market Hiding Two Million Tons of Stock?

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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.

Source: Reuters

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.

Source: Reuters

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.


–Stuart Burns

Comments (10)

  1. Andrew Pedler says:

    Indeed! Two million tonnes of “hidden” stockpiles … with a density of 8.96, and if that copper could be cast as a single block, it would be a cube 60.7 metres in each dimension, the size of a decent sized office block. … a bit hard to hide … But most copper is as cathode which, if not stacked more than say 2 metres high … would cover a huge area, several football fields. … probably visible from space.
    Stockpiles are normally held in an industrial area or warehouse of some sort, and stockpiles of this size would not be able to escape attention.
    It sounds like somone’s data collection is not accurate, and “unaccounted for stocks” are the balancing item.

  2. me parece que es un análisis bastante serio el cual puede ser utilizado como una advertencia del mercado que no se percibe aun pero que si todo es de avanza de acuerdo a este los precios a futuro y los ingresos proyectados por las empresas se verían seriamente afectados.

    Editor’s Note: This message has been translated into English using Google Translation:
    “I think it’s a pretty serious analysis which can be used as a warning the market that is not seen yet but if everything is progressing according to the futures prices and revenues projected by the companies would be severely affected.”

  3. cecil middleton says:

    question?? how many miles of high voltage power transmission lines are planned from both solar and wind farms to citys miles away world wide??? that is alot of copper!

  4. Stuart says:

    The cable manufacturers are rubbing their hands at these solar and wind farm projects sited in areas far from urban conurbations. Most high voltage long distance electricity transmission uses AAC or AACSR cables made from Aluminum so they are likely to boost Aluminum consumption more than Copper but it’s a good point Cecil.

  5. The issue of visible versus invisible stocks is one that has been played to the advantages of different market actors for many years. To quantify the invisible stocks is impossible, but there are some 5 million tons of metal on warrant in LME warehouses right now at rents of upwards of $2.50 per ton per week. Moving stock off warrant or into non-LME warehouses is easy and reduces the storage cost by 60-70%. It would be foolish to assume that a lot of surplus metal has not found its way to invisible storage. At the same time, prices have reached record levels at the depth of a recession, which is also a paradox. The storgae are for 2 million tons of metal is quite small geographically speaking, some 50 warehouses measuring 150 metres by 50 metres would hold the lot. And that would be easy in a country like China that has no reliable data on which to base calculations of consumption. In addition, the advent of physically backed Copper ETFs will increase apparent demand while adding to the stock overhang, as eventually investors have to sell.

  6. John Jolley says:

    I read a while back that chinese pig farmers were hoarding copper,could that be the missing stuff ?

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