(Repeats March 10 column with no changes. The opinions
expressed here are those of the author, a columnist for
By Andy Home
LONDON, March 10 Copper bulls have just had a
The world's two biggest mines, Escondida in Chile and
Grasberg in Indonesia, are losing production daily due to a
strike and an export ban respectively.
Another major mine, Cerro Verde in Peru, is also facing an
imminent walkout with unions planning a five-day strike starting
Yet the price of copper on the London Metal Exchange (LME)
has retreated from its early March highs above $6,000
per tonne to $5,730 now.
There is an element of buying the rumour and selling the
fact at work here. The price surged in anticipation of the
well-flagged disruptions at Escondida and Grasberg.
But the bullish ardour has also been dampened by a surge in
copper "arrivals" at LME warehouses.
In the space of just four days, 141,625 tonnes have hit the
LME storage system. Headline inventory has risen to 325,500
tonnes from 196,425 tonnes a week ago.
The coordinated nature of this inflow suggests the bear-bull
battle that raged sporadically across the London market last
year has started again.
But it is also a timely reminder that commodities markets
don't just flip from bearish surplus to bullish shortfall at the
flick of a switch.
FACTBOX on disruptions and labour negotiations at key copper
Graphic showing LME "arrivals" by location:
RESTARTING THE MERRY-GO-ROUND
The bulk of last week's inflow of copper into LME sheds was
at three locations. Singapore received 52,700 tonnes, the South
Korean port of Busan 39,025 tonnes and the Taiwanese port of
Kaohsiung 22,000 tonnes.
Such heavy warranting activity normally implies a degree of
This isn't metal that has just happened to arrive over the
course of a couple of days. Rather, it was in all probability
sitting in LME-approved warehouses waiting to be warranted, a
process that can now be done with the stroke of a keyboard.
And if you're experiencing a certain sense of deja vu,
There were similar heavy "surprise" inflows of copper in
June, August and December last year, with the same locations
They were just one manifestation of a big bear-big bull
confrontation that raged across LME spreads, outright price and,
of course, the physical market, particularly that in Asia.
The most recent LME stocks surge has all the hallmarks of a
resumption of this long-running tussle for supremacy.
The bear has just swamped the market with metal, sending the
price sliding from its lofty perch above $6,000 per tonne.
If last year's pattern repeats itself, expect the bull to
steadily chip away at those "arrivals" with cancellations
followed by physical load-out.
The reaction may already have started.
Singapore has already seen 13,250 tonnes of copper warrants
cancelled in preparation for load-out over the last five days.
South Korea's Busan has seen 16,650 tonnes and Kaohsiung 9,375
The merry-go-round of refined copper between China and LME
good-delivery locations has just been relaunched, it seems.
The main casualty of this shuffling of metal is visibility,
any trading signal from LME stock movements being obscured by
the fog of merchant warfare.
Graphic on global exchange stocks of copper:
SURPLUS NOW, DEFICIT TOMORROW
The bear who has just dumped so much metal into the LME
system, however, has served up a timely reminder to copper bulls
that there is still a lot of refined copper around.
Away from the smoke and mirrors of the LME storage system,
other visible inventory has also been rising.
Stocks of copper registered with the Shanghai Futures
Exchange jumped 12,859 tonnes over the course of the last week
and at 326,732 tonnes they are now 180,134 tonnes higher than at
the start of January.
Metal is also hitting the COMEX warehouse network in the
United States on a daily basis. The headline figure, adjusted to
metric tonnes, stands at 120,401 tonnes, up 40,288 tonnes so far
There are, quite evidently, plenty of surplus units floating
around. Most of them are in the Asian region, but the LME system
has also seen inflow at both Rotterdam and the British port of
Hull, while the COMEX system reflects the state of play only in
the U.S. market.
This might seem to undermine the newly minted bull consensus
among analysts that copper is heading for a year of supply
It doesn't, though.
The strike at Escondida is now in its fourth week, already
longer than most people expected. Grasberg's production loss
results from a stand-off between majority owner and operator
Freeport-McMoRan and the Indonesian government, which
shows no signs of ending any time soon.
So far, however, the cumulative impact on supply from these
two disruptions falls into the "known unknown" category for
analysts, who have got used to allowing for an output disruption
in their market balance equations, typically of around five
percent of global supply.
It's just that between them the two supply hits are already
eating into that disruption allowance with every passing day.
And there are plenty of other potential labour flashpoints this
year, not to mention copper mines' propensity to underperform.
On current form, it does seem quite possible that this will
be a year of copper supply deficit. "Deficit" is a highly loaded
word in the copper market, since it flashes up on the collective
radar screen of the money men.
Many have already gone long copper on both sides of the
Atlantic. Net money manager positioning on both the LME and CME
copper contracts has been at, or close to, record levels,
according to the respective Commitments of Traders Reports.
A deficit on paper, however, does not automatically mean a
real-world shortfall of the metal, particularly when it follows
several years of surplus.
Stocks accumulated over the years of supply are not
necessarily visible. They can be sitting in partial obscurity in
Shanghai's bonded warehouse network, or in full statistical
darkness in off-market sheds anywhere else.
Some of that dark metal has just hit the light of LME
Don't necessarily expect it to sit around too long in the
LME system. But if it does get loaded out and disappear into the
great "out there", it may not be a sign of imminent scarcity
Deficit may be coming but it is not here yet.
Sadly, trying to figure out the transition process is going
to be tricky as long as this LME copper stocks war continues.
(Editing by David Clarke)