Copper speculators might have retreated from the market

London Metal Exchange (LME) warehouse volumes of copper that have tripled since May offer one of several signals that this spring’s bull market enthusiasm has eased.

“Today, rising inventories of copper held in exchange warehouses, coupled with the global market in a surplus position, would lead us to believe that prices should trend lower,” New York-based metals industry analyst John Gross writes in an early-August edition of “The Copper Journal."

“Indeed, the spot price of copper on Comex has fallen $1.14 [per pound] from $5.12 on May 21st to $3.98 on Friday,” he wrote Aug. 9.

LME pricing and inventory figures collected and published by Germany-based Westmetall show the exchange’s warehouses reached a recent low inventory level of slightly more than 103,000 metric tons in mid-May.

The volume of LME warehoused copper has tripled since then, with the exchange reporting some 320,000 metric tons in inventory as of this Tuesday.

A mid-August report by Pratima Desai of Reuters indicates almost 75 percent of that stockpile rests in just three facilities in Asia—two in South Korea and another in Taiwan.

Calling those warehouses “a market of last resort” for metals producers and traders in China, Desai also quotes an analyst with banking firm BNP Paribas as saying, “If you strip out exports, domestic [copper] demand in China looks to be anemic.”

As the price of copper rose this spring, Gross was unconvinced of a genuine shortage of the metal.

“Not everyone is short of copper,” he said in a May. “China, the world’s largest buyer, has plenty of the stuff.”

Desai says, as of August, “Investors fleeing the copper market are likely to be sidelined for many months, leaving the field clear for physical players who expect demand in top consumer China and elsewhere to deteriorate over coming months and weigh on prices.”

Although copper’s highest recent price point correlated with lower LME inventory levels, Gross is among metals observers who attributed much of the bullishness to banks making a speculation play.

In the May 17 edition of "The Copper Journal," Gross writes in part, “To our way of thinking, the volatility in copper and other metals is the result of massive speculation, whereby buying begets buying until it simply runs out of steam. We’ve been here many times before, and the story always ends in tears.”

As of this week, the LME price of copper is hovering around $9,150 per metric ton, or about $4.15 per pound.

Although demand for copper wiring is poised to remain strong if electric vehicles gain popularity and alternative energy investments continue, a shortage of the red metal does not seem to be in the offing this year.

Last month, the Lisbon-based International Copper Study Group (ICSG) calculated a global surplus of the red metal of 496,000 metric tons as of the end of May.

That figure is more than double the estimated 222,000 metric tons in warehouses at the end of May 2023, with the ICSG saying, “China’s bonded stocks are thought to have increased by about 80,000 metric tons in the first five months of 2024 compared to the year-end 2023 level.”