Chinese copper inventory
Previously, we discovered that LME (London Metal Exchange) on-warrant copper stocks have increased in the last few days. In this part of the series, we’ll discuss the recent trend in Chinese copper inventory, which recently plummeted to a one-year low.
As China (MCHI) (EWH) is the largest copper consumer, it’s pertinent for investors in companies such as BHP Billiton (BHP), Rio Tinto (RIO), and Teck Resources (TCK) to keep a close eye on the Chinese copper inventory.
Inventory holding steady
The above chart shows the trend in on-warrant copper inventory with the Shanghai Futures Exchange (or SHFE). As you can see, on-warrant copper stocks have been quite steady over the last month.
The on-warrant copper inventory with the SHFE was 11,032 metric tons on August 7, which is almost unchanged from inventory levels at the beginning of July. Nevertheless, copper stocks have come down significantly on a year-to-date basis.
However, bonded copper stocks, which are held in free-trade zones in China, have surged over the last few months. The data is not released officially, but Bloomberg estimates the figure at a whopping 650,000 metric tons as of the end of July. This represents a month-over-month decline of ~4%.
What does a lower copper inventory imply?
Falling copper inventory is generally regarded as a positive signal. Copper moving out of warehouses means that copper supply in the market is lower when compared to the demand. Conversely, copper inventory goes up in the warehouses when supply exceeds demand.
However, the ground situation in China doesn’t seem to suggest any uptick in copper demand. We’ll explore this further when we look at copper demand indicators in the coming parts of the series. In the next part, we’ll look at the supply side dynamics of the Chinese copper industry.