Surging LME copper stocks

LME copper stocks have lifted to the highest levels in a number of years in the March, with the speed of increase also as rapid as there has been since the cataclysmic decline in demand in early 2009.

This is not necessarily bearish, as most of the increase is likely to be those looking to take advantage the usual seasonal uplift in industrial output and copper consumption in China.  But the faster stocks rise,  the stronger the increase in Chinese consumption needs to match positive price expectations.

LME inventory is a large part of the inventory chain and are extremely visible, but is by no means all of it.  In particular, it does not take into account any metal in China. There is some visibility on stocks in China via the SHFE registered warehouses, but there is a much larger proportion of stock sitting in unregistered bonded warehouse.

SHFE stocks are also rising, but like LME inventory rise its at least partially likely to be due to those looking to take advantage of the seasonal uplift in consumption through to mid-year.  The level has also risen over recent years as more warehouses have been registered.

Less visible bonded warehouse stocks are reportedly high, although not all of this is accessible to the market as some of it is tied up in financing deals.

Its likely that stocks will be drawn down into mid-year.  But how bullish that is for prices depends on how strong the pick up in demand will be. The flash PMI data from China is encouraging, suggesting the rise should be around expectations.

But those that are bullish on China will want to see of this material making its way out of warehouses soon, as the faster inventories rise, the more likely it is that demand will disappoint.