Buildup in copper cathode inventories in Guangdong will be capped

SHANGHAI, Feb 26 (SMM) – Social inventories of copper cathode in south China’s Guangdong province have hit a record high as of February 25 as the coronavirus outbreak deterred the recovery of downstream demand. While current weak consumption may extend the upward trend in the inventories, SMM does not expect any further significant buildup as smelters will seek to ease inventory pressure in south China by shipping cargoes to other regions and piling up stocks of sulphuric acid will constrain production at smelters. 

SMM data showed that social inventories of copper cathode in Guangdong surpassed 91,200 mt posted in late-March 2019 and hit an all-time high of 102,100 mt as of February 25, the fourth week after the Chinese New Year, up 4,900 mt from a week ago.

According to historical data, the spring season copper inventory buildup in Guangdong typically commenced two weeks prior to the CNY as downstream consumers were away for the holiday while production at smelters continued. The inventory accumulation usually drew to an end in the fourth week after the CNY as the demand resumption offset the increase in stocks. 

Slower-than-expected recovery of operating rates in the downstream copper processing sector primarily accounted for the prolonged period for copper stocks buildup this year. The operating rates for copper processors were below 50% last week. Some pessimistic market participants expect the operating rates to edge up slightly above 50% in March. 

Between the third week pre-CNY and the third week after CNY, copper inventories in Guangdong increased 52,900 mt, compared with a 61,200 mt rise in the same period last year. SMM expects the stocks to broke above 110,000 mt but unlikely to surpass 120,000 mt in the coming weeks.