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On-Warrant Copper Inventory Declines 15% in May

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Copper inventory

We’ve already seen that copper prices lost 2.5% in May. Copper prices have been on a downtrend for the last couple of weeks. Now, let’s look at the latest trend in the LME (London Metal Exchange) copper inventory.

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On-warrant inventory

All metal that enters a warehouse is on warrant. A warrant is canceled when the bearer of the warrant requests physical delivery. These warrants are then no longer available for trading. It’s important to note that the inventory level in warehouses is not affected by canceled warrants. Inventory levels are affected only by physical movement of the metal.

You can also say that only on-warrant metal is available for fresh delivery. Instead of total copper stocks, it’s better to look at the on-warrant copper inventory.

On-warrant stocks decline

The above chart shows the trend in on-warrant LME copper inventory. Inventory levels declined 15% in May. However, on a year-to-date basis, on-warrant LME copper stocks are up more than 40%.

It’s important to note that most of the stock buildup happened in the first three months of this year. On-warrant stocks reached 290,000 tonnes on March 17. Since then, the trend has been downward for copper stocks.

A decline in on-warrant inventory means that more metal is getting booked for delivery. It’s generally associated with an uptick in copper demand. Strong copper demand benefits copper producers like Turquoise Hill Resources (TRQ), Newmont Mining (NEM), and BHP Billiton (BHP). NEM currently forms 4.4% of the SPDR S&P Metals and Mining ETF (XME) and 6.05% of the VanEck Vectors Gold Miners ETF (GDX).

So how are copper stocks shaping up in China? We’ll find out in the next part of this series.

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