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Unexpected Surge in Copper Supply Hammers Price

By Jim Williams

The copper world was thrown for a loop this week as a stunning 43,000 tons of the red metal landed in exchange storage Monday and Tuesday. The 43,000 tons marks a 30% rise in two days. That is the biggest two-day increase in stockpiles since 2004.

“What possibly happened is that some inventories from Shanghai exchange moved to London, making the traders nervous,” Dmitry Kolomytsyn, chief commodities strategist at Sberbank CIB, told Bloomberg Business.

Well, the market noticed. The sudden surge in supply pushed copper prices down to $2.04 a pound ($4,508/ton) Tuesday, more than wiping out Friday’s rebound and pushing copper back into the red for 2016.

“Chinese manufacturing is not picking up momentum, so demand is not picking up and there is no reason for copper prices to rise,” said Julius Baer analyst Carsten Menke.

The copper price has been under pressure recently after a reading of Chinese manufacturing activity showed that Beijing’s economic stimulus program is not working as expected.

The dumping of metal onto the exchange came a few days ahead of a slew of key data from China this week, including preliminary trade numbers for May scheduled to be announced today.

“The markets should not pin their hopes on these data all that much,” said Commerzbank analysts in a research note.

Further Reading
Frequent contributor Andrew Hecht wrote an interesting column for Seeking Alpha this week. He wrote an article titled, “4 Reasons Commodities Will Push Higher.”

Here are his reasons:

  1. Markets overshoot
  2. Global interest rates remain low
  3. Economics of commodities
  4. Explosive population growth vs finite raw materials

Hecht goes into details in the article. You can read it here. You can follow Andrew on Twitter.

 

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