Chinese copper inventory
Previously in this series, we learned that LME (London Metal Exchange) copper inventory has been steady in April. Investors should also track Chinese copper inventory. China (FXI) is the largest copper consumer, absorbing more than 42% of global copper production. In this part, we’ll analyze the latest trends in Chinese copper inventory.
The chart above shows the on-warrant copper inventory on the Shanghai futures exchange. As of April 16, inventory was down ~9% from March highs. But it’s up more than 2.5 times since the start of the current year.
It’s important to note that copper inventories tend to increase at the start of the year, which coincides with the Chinese lunar year holidays. Copper stocks start coming down once normal business activity resumes.
The downward trend in Chinese copper inventory is worrisome this year on two counts. First, the inventory buildup is quite massive compared to previous years. To make matters worse, copper stocks haven’t come down much since the Chinese holiday season.
Negative industry impact
Chinese copper demand is expected to be subdued this year. The current Chinese copper inventory trend is testimony to this fact. Less Chinese copper demand impacts copper producers including Freeport-McMoRan (FCX) and Rio Tinto (RIO).
Teck Resources (TCK) supplies steelmaking coal to China. It’s also impacted by the slowdown in the Chinese economy. TCK currently forms 0.35% of the iShares North American Natural Resources ETF (IGE). Silver Wheaton (SLW) forms 0.45% of IGE.
Chinese copper demand should be closely tracked by investors. We’ll discuss several leading indicators of Chinese copper demand in our next part.