Copper Stockpiles Fall From Three-Year High

Updated on
  • Inventories tracked by exchanges fall from three-year high
  • Money managers boost bullish bets for fourth straight week

Copper bears are on the back foot.

Combined stockpiles in warehouses tracked by exchanges in Shanghai, London and New York have fallen 9.6 percent from a three-year high in mid-March, while money managers boosted their bullish bets on copper traded on the London Metal Exchange for a fourth straight week.

Inventories are declining as scrap-metal supply begins to slow after a deluge that offset output disruptions at mines. The outlook for demand is improving after China’s official factory gauge climbed to the highest in almost five years, signaling increasing economic momentum in the world’s largest user of the metal. Michael Widmer, an analyst at Bank of America Merrill Lynch has maintained his bullish copper price target, while JPMorgan Chase & Co. analysts are advising clients to take long positions in the July LME copper contract.

“Demand has been pretty good,” Peter Thomas, a Chicago-based senior vice president at metals broker Zaner Group LLC, said by telephone, recalling buy orders he’s seen from Chinese clients coming in this week. “They were on a shopping spree.”

Widmer kept his copper target for mid-year at $6,600 a metric ton, higher than Monday’s price of about $5,770 for the contract for delivery in three months on the LME, citing anecdotal signs of demand for wires and cables picking up. The metal will claw back some of its losses to average $6,000 in the second quarter, JPMorgan analysts forecast in April 7 note.

Prices have faltered since reaching a 20-month high of $6,204 on Feb. 13, amid concerns a flood of scrap will keep the market in surplus even after a prolonged strike at the Escondida mine and a contractual dispute at the Grasberg mine curbed global output. While JPMorgan analysts see copper ending near $5,000, they expect a short-term lift as seasonal rebound in demand helps erode stockpiles.

Thomas, a 30-year veteran in metals trading, closed two-thirds of his clients short positions or bearish bets on copper after seeing an onslaught of orders to buy the metal from Chinese clients. He had earlier advised his clients -- including metal recyclers, miners and copper users -- to hedge against price declines.

“While we think scrap will in all likelihood remain an overhang, there are early signs that the easing in availability has started to subside,” Widmer wrote in an April 3 report.

Also boosting the outlook are plans to develop a new economic zone near Beijing and the prospect of double-digit growth in India, Codelco Chief Executive Officer Nelson Pizarro said in an interview on Wednesday.

Slowing mine supply growth will also help the metal to trend higher longer-term, Bank of America analysts wrote in a separate report April 6.

— With assistance by Mark Burton, and Joseph Richter

(Updates price in fifth paragraph, adds JPMorgan outlook in third, fifth paragraphs.)
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