The copper market may “tighten up” more quickly than anticipated once buying resumes from consumers in China, the world’s biggest user of the metal, according to Standard Bank Plc.
Three cities hold 69 percent of copper stockpiles tracked by the London Metal Exchange and supplies may be unavailable for immediate usage because of the required waiting times for withdrawals, according to Standard Bank analyst Leon Westgate in London. LME inventories of the metal used in pipes and wiring reached a nine-year high today.
“The interesting thing will be what happens when the Chinese do decide to restock,” Westgate said by phone. “Chinese fabricators have 900,000 tons of copper sitting on their doorstep, so obviously they feel comfortable,” he said, referring to an estimate for inventories in bonded warehouses in the country cited by the bank in a report March 15.
More copper is being tied up in financing transactions, Steve Hardcastle, head of client services for industrial commodities at Sucden Financial Ltd. in London, said last week. Funding accords may involve as much as 60 percent of LME zinc stocks and 30 percent of nickel, according to estimates by Societe Generale SA.
“It looks like copper is on track to become another financing- or warehousing-type vehicle, similar to aluminum and zinc,” Westgate said. “However, the copper market is fundamentally tighter than those, so the comparison doesn’t stand up too well.”
Refined copper supply will exceed demand by 92,000 metric tons this year, or 0.4 percent of global consumption, Barclays Plc said in a report March 14. That compares with an aluminum surplus of 1.54 million tons, or 3.1 percent of global usage of the lightweight metal.
LME copper stocks rose for a 26th session to 557,450 tons, the highest since October 2003, exchange figures showed today. New Orleans, the Belgian port city of Antwerp and Johor in Malaysia are the three biggest repositories. Inventories climbed in the last few months as warehouse companies offered incentives to draw metal into storage, Westgate said.
Warehouses are able to calculate incentives they can offer to holders of metal based on waiting times, Duncan Hobbs, an analyst at Macquarie Group Ltd., said yesterday at Metal Bulletin’s 5th World Lead Conference in Istanbul. Investors are competing with physical consumers for metal due to demand for financing, he said.