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Copper Inventory Games: Not This Time Please!

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Copper inventory

We’ve seen significant fluctuations in the official copper inventory over the last few quarters. While inventory levels are a key price driver, offering insights into the underlying demand-supply balance, we’ve also seen sudden arrivals to and withdrawals from LME (London Metal Exchange) warehouses. Both the bulls and the bears have used changes in copper inventory to support their arguments.

Last year, we saw a fall in the copper inventory in August. Bulls used this to justify their optimism for copper, citing falling global inventories. The LME copper inventory fell from 301,000 on August 3 to 211,000 on September 8, 2017. However, after September 8, we saw a spike in the LME copper inventory. Interestingly, this date coincides with China’s trade data release. That month, China’s copper import data were lower-than-expected and dented the copper market’s sentiments.

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Sudden spike

Looking at current markets, we’ve again seen a sudden spike in the LME copper inventory. There looks to be a pattern in these inventory movements, as the timing has been crucial. Currently, copper market sentiments are bearish as traders seem to have gone into risk-off mode, fearing a trade war between the United States and China. It’s worth noting that the fluctuation in the copper inventory reflects a tiny fraction of global copper demand, which the ICSG (International Copper Study Group) pegged at 23.6 million metric tons in 2017.

Copper markets

Short-term fluctuations in inventories don’t necessarily say much about the copper market balance. Fluctuations could also be the result of copper’s movement from the official ecosystem to the unofficial ecosystem, and vice versa. In the past, we’ve also seen reversals in copper inventories after these sudden spikes.

Meanwhile, copper prices have been subdued this year, which has negatively impacted the price actions of copper miners such as BHP Billiton (BHP), Rio Tinto (RIO) (TRQ), and Antofagasta (ANTO).

In the coming articles, we’ll see how analysts are rating copper miners amid sagging copper prices. Let’s begin by looking at Freeport-McMoRan’s (FCX) ratings and target prices.

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