Tag Archives: Copper

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China copper inventories swell to over 1 million tons

Chinese copper inventories held up in the bonded warehouses may have passed the 1 million ton mark and along with inventories, there may be as much as 1.4 million tons of copper sloshing around China.

“The problem is that inventories remain high, equivalent to three months’ imports at current rates at more than 1 million tonnes. And that’s just stockpiles in bonded warehouses, which don’t include other inventories, meaning the total may be closer to 1.4 million tonnes, representing a substantial overhang,” writes Clyde Russell from Reuters.

China’s copper imports rose 13.5% in November from the previous month, but that is only a partial reverse from a 18.5% drop reported in OCtober..

Last week, speculators increased their bullish bets on copper by 15,034 contracts, for a net long of 13,841 contracts from a small net short of 1,553 lots in the previous week.

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Speculators short copper, bullish on gold, oil

Speculators have tackled bullish bets on gold and oil futures for a third consecutive week while going bearish on copper, data from the Commodity Futures Trading Commission’s Commitments of Traders showed.

The bets speculators make in the futures are a good indicator as to the direction of these commodities in the spot.

As the copper graph above shows, the blue humps (bullish bets) correspond well to the price jumps in the spot while bearish bets (blue dips) correspond with price drops.

With the recent strong activity in the copper that moved from circa $3.55 to $3.64, we have a small divergence as speculators are betting bearish despite the price jump.

Of interest is the action in coffee where, if we are to assume the futures-spot correspondence, speculators seem to betting on more price drops even though coffee looks like it is trying to stabilize in this space.

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Global copper in deficit, industry group

Global copper market was 522,000 tons short from January to August says the International Copper Study Group (ICSG) in its latest report published yesterday.

“In the first eight months of 2012, world apparent usage grew by 5.4% compared with that in the same period of 2011 principally owing to strong growth in Chinese… However, Chinese net imports in the 3rd quarter of 2012 were 24% lower than in the first quarter, and anecdotal evidence suggests that the high import level in early 2012 was accompanied by increased inventories held in bonded warehouses,” says ICSG.

For 2012, mine production was up 3% from 2011.

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Speculators cut bullish bets in key commodities

Speculators have cut their bullish bets on a several key commodities as the dollar surged higher on Friday.

Speculators have cut down on their bullish bets in oil by 8,779 contracts and increased their short positions by 6,698 contracts for a net bearish looking position of 15,477 contracts.

Bullish bets on gold were also slashed by 9,992 contracts but betting short was much smaller to 2,142 contracts indicating that some still hope gold will turn bullish again.

Bullish bets on copper – a key industrial indicator with a huge correlation with stocks – were also slashed. Bullish bets were slashed by 4,182 contracts and short bets rose by 6,921 contracts.

Bearish action in copper maybe related to 3 different things: rise in the dollar, less-than stellar expectations for Chinese rebound and too much (and uncertainly high) copper inventory in Shanghai bonded warehouses.

“Stocks held in bonded warehouses in China may be almost three times larger than those monitored by the London Metal Exchange, according to an estimate this week from researcher Wood Mackenzie,” reported Bloomberg last week.

The concern is that slow to recover China’s economy may fail to absorb these huge copper inventories, forcing the owners to re-export the metal back to the global markets – and that could tank the price.

“Given how low copper prices are now, it would make sense for smelters to put excess supplies under financing until the markets recover. To do that, they’ll have to put them in warehouses and get receipts,” CIFCO Futures analyst Zhou Jie said.

Gold’s negative reaction to the rise in the dollar, despite an ongoing QE, is another piece of evidence that casts doubt that being bullish on gold should be predicated solely on the amount of new currency printed by the Fed. This, however, maybe short term effect.

“In the short term gold may hover around Friday’s low, but there isn’t much room on the downside as easing monetary policy is still a global trend,” said Li Ning, an analyst at Shanghai CIFCO Futures.

Others think the bullish dollar effect predicated on strenghthening of the economy will prevail.

“But the dollar looks likely to maintain its uptrend. The dollar charts look bullish and better economic fundamentals in the U.S. compared to Japan’s also favour the dollar,” says Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

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Copper ETF shelved again by SEC

U.S. Securities and Exchange Commission (SEC) has delayed its ruling, for the second time, on the copper ETF proposed by JP Morgan.

“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider the proposed rule change,” says the SEC ruling available here.

The proposed JPMorgan copper ETF will remove from the market 61,800 metric tons which is 30% of the available global copper supplies available for delivery. All other copper supply is tied up in some form of contracts that renders them unavailable for delivery.

As the ETF gows, however, an ever larger chink of the available copper would be gobbled up by the ETF with a possibility of a copper shortage.

“JPM’s offering will therefore result in a substantial artificially-induced rise in near-term copper prices on the LME, which will severely disrupt the world market for the trading of such copper by, among other things, simulating the effects of an artificial squeeze or corner being financed by unsuspecting investors in JPM’s ETF,” wrote Vandenberg & Feliu to the SEC.

The squeeze on copper supply would set in motion a herding effect with speculators, in pursuit of quick profits, piling on the ETF shares. A possible bubble would burst with JPM forced to dump copper on the market.

Unlike precious metals that can be used for jewlery and currency, Vandenberg & Feliu says that copper’s purpose is only fabrication so the very purpose of the ETF is therefore flawed.

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Goldman warns on copper

Copper prices face a major sell-off once Chinese property boom fizzles out in 2014 says Goldman.

“We recommend producers strongly consider using any rallies in the copper price over the next 6-12 months as an opportunity to hedge, and that other investors continue to monitor any copper positions over the next 12 months with the late 2013 and 2014 downside risks in mind,” Goldman said in a report on Wednesday.

Goldman believes that copper will outperform iron ore, which means that Goldman thinks that iron ore will sell-off much more than copper.

Some traders are worried that a copper sell-off may come sooner than that and are using technical level of $8,000 per ton as a sell-off guide.

“London copper will unlikely breach its technical support at $8,000-$8,100 ahead of the China data. If it did, there is no telling how much prices can plunge from those levels,” said a Shanghai-based copper buy erealier this week.

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Copper demand to outstrip supply in 2012, ICSG

Global demand for refined copper will outstrip the supply in 2012 by 400,000 tons says the latest report by the International Copper Study Group (ICSG) released yesterday.

“According to ICSG projections for 2012, world demand for refined copper is expected to exceed production of refined copper by about 400,000 metric tonnes (t), as supply will continue to lag behind the growth in demand. This would be the third consecutive year of production deficit. In 2013, however, increased output from new and existing mines could reverse the 3-year trend, and refined copper production could exceed demand by an amount about equal to the 2012 shortfall,” says ICSG in its report available here.

Excluding China, global demand is to shrink by 1%.

“Chinese apparent usage growth of 8% and a growth of 1.4% in the United States will offset declines in the European Union and Japan,” says ICSG.

ICSG sees increase in China copper demand for 2013 by 5% while demand in rest of the world is seen dropping by 3.4%.

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Bullish bets on copper, gold rise sharply

Speculators have loaded up on bullish copper and gold contracts citing the Fed’s QE and in anticipation of more ECB action and possibly coordinated central bank action.

“It’s a response to the very aggressive move by the ECB and anticipation of more coordinated central-bank actions. The ramifications are bullish not just for the global economy but also for risk-on markets like copper,” said Adam Sarhan, chief executive of Sarhan Capital.

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Copper, iron ore signaling different things

Iron ore prices have been falling as of late much more so than the price of copper, a metal that the ore is very well correlated with, so a question that pops out of this price divergence is which price move, the ore’s drop or copper’s steadiness, is a correct signal as to what is going on in the global growth space, particularly in China.

“In truth, neither iron ore nor copper is a very pristine mirror on the state of manufacturing activity, either globally or in China itself. Copper is over-financialised. Iron ore is under-financialised,” writes Andy Home, a Reuters columnist.

He also says that the iron ore price is not just linked to China but made there and in many ways, it is not a global price.

But so is with copper in many of the same ways despite being financialized and subject to speculative attributes rather then attributes of the supply and demand: copper’s meteoric price rise in last 5 years has been predicated on growth and export specter in China and now that both are falling why isn’t copper as well.

With storage space controlled by the same big box financial outfits that trade copper on the financial market, physical deliveries of the metal are artificially constrained, costing the users a premium that jacks up the marginal cost of production. Glencore’s relentless pursuit to purchase Xtrata, moreover, is showing that some of these big trading players are also eyeballing to completely vertically integrate and exert dominance over every level of commodity production and delivery.

With the advent of the ETFs and lax regulation that allows speculators in metals to exert physical control over stuff they trade, western economies, indeed global, have been undergoing a massive taxation that amounts to a wealth transfer from producers to the financial sector.

This is also true of oil and if the legislators succumb to the demands of the big box financial houses, virtually any standardized product could come under their controlling spell, have its own ETF, be subject to speculative sentiment… As a digressive exhibit, witness Citigroup Chief Economist Willem Buiter’s musings on how and why water should be subject to financialization.

Anyway, one resultant of the collapsing iron ore price is a slew of project cancellations by the Australian miners. Some $246 billion in investments is being sidelined a bankers become concerned about what is it that they are funding.

In another sign that what happened to iron ore maybe a macroeconomic tipping point is not just the mining investment but also the employment picture in Australia, disproportionately bloated and swelled.

The employment in Australia’s mining sector dropped 4,600, the first quarterly drop since mid-2009, and more lay-offs are expected. With Chinese signaling that they view any massive stimulus a detriment to Chinese economic health, negative datapoints in Australia ought to pop up with more frequency going forward.

Having said all this, will copper go lower to recorrelate with the iron ore or the other way around?

Short-term odds favor the upside in the ore as the strong mining hands step up and scoop up the bargain while central banks inject liquidity boosting copper. The story over the longer-term looks more negative and it is worth remembering these negative headwinds once the long-term arrives.

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Speculators constraining copper’s supply for end users

Warehouses at the Dutch port of Vlissingen has been loading up with copper stocks and exacerbating copper’s shortage for the end users.

According to the London Metal Exchange (LME), there are about 14,500 tons of copper in warehouses that the exchange monitors of which 10,000 is located in 37 Vlissingen warehouses which means that only 4,500 tons of LME copper is available to the end users.

Why is the 10,000 copper stock not available?

In order to tackle the artificial supply constraints that jack up the price, LME delisted Vlissingen back in April as a delivery point. The delisting took effect on July 25, but during that period copper stocks at Vlissingen rose from 2,175 tons to  10,150.

As a result, premium over the LME price that end users have to pay on the metal in order to get some has risen from about $70 in August to as high as $110 now.

The big beneficiaries of this artificial supply constraint are big warehouses like Glencore which some say holds well over 50% of supply in some metals.

“Vlissingen is a special case. In Europe there’s no stock basically, and it’s mostly in Vlissingen. If a warehouse gives you an attractive price to put material in, you put material in,” a Europe-based trader said.

Some folks have been noticing “unexplained” movements in metals stocks between warehouses that, they say, do not justify fundamentals that are, with the global slowdown, bleak.

One way that a financial houses can assure price floor in metals in a low interest rate environment with no demand is to offer cheap storage price to metals owners who can profit if it is sold on a premium. This takes away the available copper supply while those who purchase have to pay for it at a premium to LME plus rent to the warehouses on what they purchased for all the days that they are waiting for the metal to trickle out to them.

ETFs are the other big hogs of warehousing that contributes to artificial supply constraints and JPMorgan and Black Rock are both proposing a copper ETF.