Copper stockpiles in warehouses monitored by the London Metal Exchange climbed to the highest level in almost 16 months on deliveries amid weak demand and incentives storage companies offer to attract metal.
Inventories climbed for an eighth session, rising 1.5 percent to 430,725 metric tons, the highest level since Oct. 28, 2011. A total 4,450 tons of copper were delivered into the Belgian city of Antwerp, where inventories more than doubled this year to 101,125 tons. Stockpiles in Johor also more than doubled to 56,600 tons, while New Orleans LME copper climbed 62 percent this year to 124,325 tons, the highest since January 2012.
The three locations are the biggest copper repositories in their respective regions, accounting for 65 percent of LME copper stockpiles. Inventories are rising because of a growing surplus in the market and as warehouse companies offer incentives to attract metal to their sheds, according to Barclays Plc.
“You are looking at a market that’s beginning to move into a period of surplus,” said Gayle Berry, an analyst at Barclays in London. “Maybe in the past we wouldn’t have seen all of that surplus come in to LME warehouses or be as visible as it is right now. I suspect the reason why we’re seeing that is because of some of the incentives that are being offered by warehouses out there to get metal.”
Refined copper supply will grow by 4.6 percent to 21.3 million tons this year, exceeding demand by 176,000 tons, the most since 2009, according to Credit Suisse Group AG. Access to LME stockpiles may be limited as more than 60 percent of copper inventories are stored in locations affected by long delivery waits, according to the bank. At the current minimum delivery rates set by the LME, withdrawing metal from New Orleans may take as long as 33 weeks, while a wait in Antwerp is 27 weeks, according to Bloomberg calculations.
“Concentrating metal in few warehouses and causing queues is always an issue for the physical market, in my view,” said Michael Widmer, an analyst at Bank of America Corp. in London. “What is happening right now, it’s not so much an issue at the moment but it could become problematic when demand gets a little bit stronger.”
Should demand for copper return, limited availability of metal may lead to higher premiums that buyers pay for immediate-delivery metal, according to Barclays. About 40 percent of metal is used in construction, according to the Copper Development Association.
“There is a potential” for rising premiums, Berry said. “We’re not seeing it yet. The reason why aluminum premiums are so high is not just because there is a lot of metal in financing, but because there is also consumer demand for that metal. So you’ve got two competing forces for it.”