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 China’s 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. When China’s refined copper imports started to taper down starting in April, we saw big drawdowns in the SHFE copper inventory.
LME copper stocks rose to a one-year high earlier this month due to subdued demand from China. However, we have seen LME copper inventories stabilize after the rise earlier this month. The copper inventory in the SHFE continued to fall in September. The total copper inventory in the SHFE has fallen ~260,000 metric tons from its highs in March.
Stability in copper inventories seems to provide some support to copper prices (DBB). Having said that, copper’s upside might be capped considering the global uncertainty and copper’s projected surplus. You can read Why Copper Has Underperformed Other Metals This Year to explore the factors that are weighing heavy on copper.
Along with copper, gold is another key driver of Freeport’s earnings. In the next part, we’ll look at the recent movement in gold prices.