LME Copper Inventory Surges to a Two-Year High on Subdued Demand



London Metal Exchange copper inventory

Previously in this series, we learned that copper prices recently plunged to six-year lows. Now, we’ll look at how copper inventories are shaping up on the LME (London Metal Exchange).

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On-warrant inventory

The previous chart shows the on-warrant copper inventory with the LME. All metal that enters the warehouses is considered to be on warrant. The warrants are canceled when the bearer of these warrants requests physical delivery. These warrants are then no longer available for trading. The inventory level in warehouses isn’t affected by canceled warrants. Inventory levels are affected only by the physical movement of the metal.

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

As you can see in the chart above, on-warrant copper stocks have increased over the last couple of months. On August 7, LME on-warrant copper stocks stood at 329,425 metric tons—the highest level since June 2013.

Copper demand could be weak

Higher on-warrant copper stocks imply that less metal is being booked for delivery—a sign of weakening demand. The ICSG (International Copper Study Group) estimates that global (ACWI) copper demand declined by 4% YoY (year-over-year) as of April. This was largely led by the slowdown in Chinese (FXI) demand, which declined 5% YoY over this period.

Less Chinese demand for copper negatively impacts copper producers such as Freeport-McMoRan (FCX), Southern Copper (SCCO), and Turquoise Hill Resources (TRQ).

In the next part of this series, we’ll take stock of Chinese copper inventories.


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