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How the Market Views Copper Miners ahead of 4Q17

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Part 3
How the Market Views Copper Miners ahead of 4Q17 PART 3 OF 7

Is 100,000 Tons of Copper Enough to Shake the Global Markets?

Copper

We’ve seen significant fluctuations in official copper inventory over the last year. While inventory levels are a key price driver by offering insights into the underlying demand-supply balance, we’ve seen wild price movements in copper over the last two years as copper inventory suddenly fell or rose.

Is 100,000 Tons of Copper Enough to Shake the Global Markets?

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What’s been happening?

Let’s look at two recent instances. Last month, we saw a decline in LME (London Metals Exchange) copper inventory amid strong market sentiment. Bulls justified their optimism for copper, citing falling global inventories. Specifically, LME copper inventory fell from 301,100 on August 3 to 210,725 on September 8. 

However, since September 8, we’ve seen a spike in LME copper inventory. Interestingly, this date coincides with China’s trade data release. As we noted previously, China’s August copper imports data, which were released on September 8, dented copper market sentiment (BHP) (VALE).

Speculative activity

The key question here could be whether a fluctuation of 100,000 metric tons in official copper inventory could trigger such sharp price movement in copper prices (FCX) (GLNCY). This fluctuation is a tiny fraction of global copper demand, which was pegged at 23 million metric tons last year by the ICSG (International Copper Study Group).

The answer is, probably not. It’s worth noting that a sudden fall in global copper inventory does not suggest that the world is running out of copper. Similarly, a small increase in copper inventory does not point to a supply storm.

In the past, like the current situation, market participants (XLB) have used fluctuations in copper inventory to support their thesis. We should remember that short-term fluctuations in inventories don’t necessarily say much about the copper market balance. Fluctuations could also be due to copper’s movement from the official ecosystem to the unofficial ecosystem and vice versa.

In the next article, we’ll discuss physical copper markets.

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