Alarm bells for copper in rising Asian inventory

LME copper stocks have risen significantly in the past few weeks, reversing the downtrend seen in the past couple of months.

Of particular interest is the increase in stocks in Johor, Malaysia, which had accounted for the majority of the stock draw to date.

Stocks were concentrated here in order to generate queues for those trying to arbitrage refined copper into China.  This subsequently pushed premiums up to very high levels.

But it seems that this trade is now reversing.  Copper premiums have reportedly fallen sharply, with inventory in Chinese bonded warehouses reportedly up ~100kt in August according to Reuters.

To be sure, the bottlenecking of inventory now appears to be backfiring, with Johor how accumulating more metal even though cancelled warrants are very high.

So even though there is a relatively large amount of people trying to get metal out of the warehouse, this is currently smaller than the amount of supply coming in.

In this post I wondered whether you can short commodities when leading indicators everywhere were improving.  The answer for copper may have to be changed to yes, given its clear that additional supply is not being absorbed into China, or elsewhere, without merely being shifted into stocks.