SHANGHAI, May 4 (SMM) – LME copper prices lost around 3% on May 3, hit by sudden surge in LME copper inventories.
While the inventory surge, which is “old trick”, will hurt copper prices in the short term, copper prices will eventually return to normal, analysts pointed out.
LME copper inventories rose 31,250 tonnes to 284,925 tonnes on May 3. Big increases in LME copper inventories have been quite common in recent two years. SMM learned the dramatic increase was due mainly to concentrated delivery by traders, which confirmed rumor circulated in late April. About 70,000-80,000 tonnes of copper was believed to have been delivered to LME warehouses.
Why did traders choose to deliver in large quantities around this time? Rising Yangshan copper premiums make it more profitable for traders to sell in domestic bonded zone than delivering to LME warehouses, Xu Maili, Director at Everbright Futures explained. The possible intention behind concentrated delivery is making copper prices fall in the short term, Xu speculated. Copper prices are more sensitive to growing LME copper stocks than to falling SHFE copper stocks, which suggests copper market is weak, Xu added.
Longs in overseas fund firms have shown signs of profit-taking recently, and recent jump in LME copper inventories might trigger further profit-taking, Xu said. However, copper prices will find some support since now is the traditional high-demand season in China and lower prices will attract dip buying, Xu understood. Overall, copper prices will remain weak, though, Xu expected.
Contango in LME copper market has been relatively high of late and exceeded $30/tonne on May 2, which indicates big pressure in overseas spot market, Luo Liang, Analyst at SHZQ Futures said. Sharply rising stocks will definitely put heavy downward pressure on copper prices, Luo noted. Nevertheless, copper prices in Chinese spot market are strengthening. Some imported copper will flow into China if import profit window opens, which will help ease pressure in overseas market. When combined with strike threat at Freeport’s Indonesia-based unit, the short-term inventory growth will not send copper prices all the way down. Moreover, surge in LME copper inventories has been frequently reported since last year. As such, while the short-term inventory growth will hit copper prices, the long-term impact will be small, Luo predicted.
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