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Chinese Copper Imports Impact the Global Inventory

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Nov. 20 2020, Updated 3:17 p.m. ET

Global copper inventory

Copper inventories are a key indicator that investors in Freeport-McMoRan (FCX), Southern Copper (SCCO), and Rio Tinto (RIO) (TRQ) should track. So far, the copper inventory moved 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. Since the increase in Chinese copper imports wasn’t exactly backed by end user demand, some of the Chinese refined copper imports found their way into SHFE (Shanghai Futures Exchange) warehouses. As a result, SHFE copper inventories rose to record highs in March.

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Chinese inventory

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 240,000 metric tons since mid-March.

Meanwhile, 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 580,000 metric tons as of the end of August. China’s bonded copper stocks have risen by 130,000 metric tons since the beginning of the year.

LME inventory spikes

Now, as Chinese refined imports started to decline as we discussed in the previous part, we started to see an inventory buildup in the LME. LME copper stocks have risen to a one-year high.

Overall, copper inventories—including LME, SHFE, and Chinese bonded stocks—have increased by more than 200,000 metric tons since the beginning of the year. Looking at surging global inventories, markets seem headed for a surplus in 2016. The projected surplus is one of the factors driving copper’s underperformance in the base metals space (DBB) this year. Read Why Copper Has Underperformed Other Metals This Year to analyze the different factors that are impacting copper prices.

You can also visit Market Realist’s Copper page for more updates on this industry.

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