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Global Copper Inventory Fluctuates, Leaves Investors Guessing

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Global copper inventory

So far, the copper inventory shuffled significantly in 2016. Earlier this year, the copper inventory in the LME (London Metal Exchange) fell steeply as Chinese refined copper imports rose to record highs.

However, some of the Chinese refined copper imports found their way into the SHFE (Shanghai Futures Exchange). As a result, SHFE copper inventories rose to record highs. As China’s refined copper imports started to taper down starting in April, we saw big drawdowns in the SHFE copper inventory. The SHFE copper inventory has fallen more than 200,000 metric tons since mid-March.

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LME stocks have risen

In June, we have seen a big spike in the LME copper inventory. You can see this in the above graph. So far, the LME copper inventory has risen more than 50,000 metric tons in June. Rising LME stocks have been driving copper’s downward price action in June. Copper producers like Freeport-McMoRan (FCX), Southern Copper (SCCO), and Glencore (GLNCY) followed copper lower in June.

Bonded stocks

Along with the LME copper inventory, bonded copper stocks, which are held in free-trade zones in China, have risen over the last few months. The data aren’t released officially, but Bloomberg estimates the figure at a whopping 620,000 metric tons as of the end of May. This represents a month-over-month increase of ~20%. China’s bonded copper stocks have risen by 240,000 metric tons since February 2016.

Overall, it seems like there’s an inventory reshuffling exercise going on between the LME, SHFE, and bonded stocks. If we look at the YTD (year-to-date) inventory activity, the LME copper inventory has fallen by ~30,000 metric tons. The SHFE copper inventory is similar to the levels we saw at the beginning of the year. However, China’s bonded copper stocks have increased by 170,000 metric tons YTD. Overall, we saw the copper inventory rise by ~150,000 metric tons since the beginning of the year.

Along with the LME inventory overhang, global concerns seem to weigh heavy on copper prices this year. We’ll discuss this in the next part of the series.

You can also consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Together, Freeport and Newmont Mining (NEM) form ~6.4% of XLB’s portfolio.

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