The new LME inventory crunch is spreading to Dr. Copper.

Since the beginning of the year, the copper market has been in the doldrums, prices have fallen into a narrow trading band, and trading volumes and open contracts on the world's three largest exchanges have fallen.

Dr. Copper has been in a disorderly collapse unpopular with investors since last October when (LME), the London Metal Exchange, intervened to contain a market in jeopardy.

The time spread limit for LME still exists, which is an additional regulatory constraint for a market that is not at all sure what to do next.

Analysts generally expect copper prices to weaken this year as growth momentum slows in China, the world's largest copper consumer.

However, with continued supply chain disruptions and low inventories, even bears are worried about the possibility of rising again before then.

This caution is justified because LME inventories have shrunk again in a slow-motion repeat of the events that led to last year's super-tightening.

Tuesday's LME inventory report showed little change in copper stocks on the exchange. The overall figure fell by 100 tonnes to 79925 tonnes, of which Hamburg inflows were 1400 tonnes, offset by extracts from there and elsewhere.

More interestingly, the actual loading of 2500 tons was cancelled in Rotterdam.

This is a magic number for the current copper market.

The exact same amount was cancelled in Rotterdam three days ago. In fact, this is the 12th time that a Dutch port has cancelled 2500 tons of cargo since mid-January.

The only days when copper was not abolished in Rotterdam were those when it was transferred to Hamburg at exactly the same rate of 2500 tons per day.

A few other LME warehouse sites are also operational, but it is this wind-up cancellation of European copper inventories that is once again starting to tighten supply on exchanges.

The overall rise in LME copper stocks at the beginning of the year has reversed and is now down 10 per cent from early January. The number of copper warrants has fallen to 53600 tonnes, the lowest level since November.

That is still a long way from the extremely low of 14150 tonnes in October, when the liquidity crunch caused LME's cash premium to soar to an unprecedented $1103.50 a tonne.

But the recent cancellation pattern echoed the chaos that led to October, except that daily trading volume fell from 10000 tonnes to 2500 tonnes.

Low inventory is not just a feature of the London market. Entering the Lunar New year holiday, the (ShFE) inventory of the Shanghai Futures Exchange has been reduced by a further 40359 tons.

At the end of January, total copper inventories on all three exchanges-LME, ShFE and CME-stood at 200402 tonnes. It dropped by 73000 tons last year, the fourth consecutive year of decline.

LME shadow inventory is disappearing faster. In the first 11 months of 2021, the amount of copper stored over-the-counter but with optional LME delivery decreased by 115000 tonnes. The total at the end of November was 18945 tonnes, the lowest since the exchange began publishing the monthly data in February 2020.

The depletion of inventories on global exchanges shows that demand is strong, especially from China, where imports remain strong.

However, if the consumption of visible inventory is at least partly due to hoarding in the supply chain, the situation may not be as optimistic as it seems.

Trading company Trafigura admits it was one of the drivers behind LME's inventory cleanup last year, but it won't be the only one that wants to make sure it has enough inventory to meet customer needs, as the world is still in the midst of a rolling shipping and logistics crisis.

As many consumers experienced during the pandemic blockade, low inventories can trigger an impulse to snap up the rest, whether it's toilet paper or bottled water or copper. LME copper stocks appear to be experiencing a second impulse to catch at hand, at a prescribed rate of 2500 tonnes a day.

In Europe, in particular, authorized stocks in Rotterdam have been reduced to just 2400 tonnes and Hamburg stocks have been reduced to 5300 tonnes.

Although LME inventories are dwindling, copper prices don't seem to care.

LME copper for three-month delivery continues to trade sideways in the range of $9500-$10100. The time span is limited. Spot metals are still at a premium, but as of Monday's close, they were worth just $29.25 a tonne.

Speculators have left hot markets in China and other parts of the world because of a lack of action.

In the most recent trader commitment report, the CME copper contract is still slightly net long, reaching 19256 contracts. Bearish short positions have barely changed in recent months, with net positioning reflecting only a small change in bullish bets.

Everyone seems to be waiting for copper prices to decide how to break through the increasingly suffocating range.

The macro situation is deteriorating, first in China, where manufacturing output growth is in danger of stagnating, which is why most analysts are looking for lower prices this year.

But clock-like cancellations deter traders from doing anything, and the longer they last, the more likely Dr Copper's drowsiness is to be rudely interrupted.