Chinese consumption is rising and stocks being drawn. SHFE stocks have fallen ~55kt, but this represents only a small portion of stocks, with inventory in bonded warehouses also reportedly falling over 100kt.
With Chinese imports currently at low levels and domestic stocks being drawn relatively quickly, it seems likely they will have to increase imports to stop further destocking.
The availability of refined metal has been impacted by an outage at Asia's largest copper smelter in India, which has pushed treatment and refining charges (TC/RCs) higher.
TC/RCs having been rising all year as concentrate supplies have increased on better mining outcomes. While this is usually a bearish sign for metal prices, the fact that recent gains are due to a reduction in smelting capacity is not bearish for refined metal
More importantly, the availability from ex-China markets is being squeezed by traders backing up metal into particular warehouses.
TC/RCs having been rising all year as concentrate supplies have increased on better mining outcomes. While this is usually a bearish sign for metal prices, the fact that recent gains are due to a reduction in smelting capacity is not bearish for refined metal
More importantly, the availability from ex-China markets is being squeezed by traders backing up metal into particular warehouses.
The rise LME warehouse stocks has stabilised in the last month or so, but the composition has shifted more towards warehouses where there it is increasingly difficult to get metal out.
In particular, there has been an increase in stocks at Glencore's Johor warehouse, with cancelled warrants also spiking at this location.
In particular, there has been an increase in stocks at Glencore's Johor warehouse, with cancelled warrants also spiking at this location.
This squeeze on metal has helped push premiums up into the region, which are reportedly up to ~$140t.
It seems likely that this will push copper prices higher from current levels in the near term. The price levels we end up at depend on the vibrancy of Chinese demand, which has been a bit all over the place.
Headline industrial production numbers are mostly weaker than expected for the balance of the year, while copper intensive products have been a mixed bag. For example, air conditioners have grown at a modest 5.3%YoY YTD (March) while power equipment is down sharply.
So while I would be bullish, I wouldn't get too carried away on the upside, which may quickly turn to downside as the seasonal strength in Chinese demand disappears into the summer.
It seems likely that this will push copper prices higher from current levels in the near term. The price levels we end up at depend on the vibrancy of Chinese demand, which has been a bit all over the place.
Headline industrial production numbers are mostly weaker than expected for the balance of the year, while copper intensive products have been a mixed bag. For example, air conditioners have grown at a modest 5.3%YoY YTD (March) while power equipment is down sharply.
So while I would be bullish, I wouldn't get too carried away on the upside, which may quickly turn to downside as the seasonal strength in Chinese demand disappears into the summer.
