Leading indicators now suggest that manufacturing in these three regions is now consistently recording growth.
The implications across commodities is quite different. While the US economy and manufacturing sector is big, in terms of copper consumption, it is ~half the size of the EU.
The chart to the left weights the PMI data (which have a high correlation with metal consumption) by respective shares of copper consumption. It shows that the return to growth in the Eurozone has been critical in driving the outlook in G3 copper consumption back to positive territory.
While copper consumption in the G3 is on par with China, the delta in consumption has been nowhere near as large. Nevertheless, the return to growth is important in driving stocking activity in the western world, which can have a big impact on prices, particularly when China is also engaging in stocking activity.
LME inventories have come down relatively quickly in the month to date, with most of the withdrawal coming from Asian warehouse locations and some from the US.
With SHFE warehouse stocks also tending to fall, it suggests that Chinese demand is able to absorb additional available copper so far. This has been supportive of prices
As I have argued in the past, the availability of metal has affected by the concentration of metal in particular warehouses. So while there has been surplus in the YTD, with the level of inventories the highest in years, it hasn't weighed as heavily on prices as it might have done due to issues accessing the metal.
As I have argued in the past, the availability of metal has affected by the concentration of metal in particular warehouses. So while there has been surplus in the YTD, with the level of inventories the highest in years, it hasn't weighed as heavily on prices as it might have done due to issues accessing the metal.
The first signs that stocking activity in Europe is beginning to come into play is the rise in cancelled warrants in Antwerp. This has yet to translate into falling stocks, with the total tonnage held here a lot less than in Malaysia for example.
But the fact that most of the LME inventory in Europe is concentrated in one warehouse will create addition tension in demand for refined metal, as LME metal won't be readily available. This should provide additional support to copper prices while China continues to consume ex-China inventory rather than just shift it into China.
