[SMM Analysis] LME copper inventory continues to decline overseas consumption recovery, recent arrival of goods in Hong Kong up discount is under pressure

SMM7 March 23: since mid-May, LME inventory has continued to decline. As of July 22, LME copper inventory fell to 145000 tons, nearly 50% lower than in mid-May, including 4500 tons in Asia, 98500 tons in Europe and 42000 tons in America. The proportion of written-off warehouse receipts rose to more than 50 per cent, with the proportion of written-off warehouse receipts in Asian warehouses at a high of 94.44 per cent.

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The increasing expectation of continuous inventory removal in the market led to the strengthening of spot prices, the expansion of the LME0-3 back structure to US $17 / ton, and the gradual decline of the Shanghai-Lun ratio.

Reasons for the decline in overseas inventory

The process of overseas economic recovery continues to advance, and the recovery in manufacturing has led to a gradual pick-up in copper demand. Last week, the federal reserve announced that us industrial output in June 2020 surged 5.4 per cent from a month earlier and was higher than expected by 4.3 per cent, the biggest month-on-month increase since December 1959. A series of European data also show that European industry rebounded after the opening up of the economy.

The import price comparison was briefly opened in June and July, and there were some traders transporting electrolytic copper from the LME warehouse to China. After the price comparison was closed, this part of the goods either entered the bonded warehouse, or the import declaration was converted into domestic hidden inventory.

Most of the goods delivered from the LME warehouse are shipped to China. According to SMM research, taking into account the 3mi 7-day shipping period, these goods will arrive at domestic ports from the end of July to early August, and most of them are mainstream fire and wet process copper, such as Japan and South Korea, which is expected to cause some pressure on the discount after being imported into the domestic trade market.

Outlook for the future

The space for destocking in Asia has been reduced to a historical position, and the amount of deliverable in the short term is very limited. Recently, supply problems have been simmering in major copper-producing countries in South America, a strike by copper miners in Chile is still simmering, and protesters in Peru recently attacked a convoy at the Las Bambas copper mine. SMM expects imports of copper to decrease month-on-month in August, and import parity may open up opportunities.

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