Is copper really in surplus? – by Geoff Candy ( – October 21, 2013)

While many assume the red metal either to be already in surplus or very nearly there, French bank Natixis believes the level of Chinese stocks tells a different story.

GRONINGEN (MINEWEB) – In a note out late last week, French bank, Natixis, queries the assumption that the copper market is already in surplus. While it doesn’t dispute that the copper market could move into surplus over the next few years, the bank maintains that saying it is already in surplus could be premature.

The reason for the dispute is the level of stocking or destocking in China that has taken place over the last few months – an issue that caused problems for copper price predictions previously.

According to Natixis, if one goes only by the level of copper stocks held in exchange warehouses, which it defines as those belonging to the LME, SHFE and Comex, then it does look decidedly like the market is in surplus, as these stocks have risen by about 110,000 tonnes since the beginning of the year.

But, it says, “Anecdotal reports suggest that stocks of copper held at bonded warehouses in China peaked at somewhere between 1mn and 1.1mn tonnes in January, and have since fallen to a low of little more than 300,000 tonnes. Netting off 110,000 tonnes of higher exchange stocks versus 700-800,000 tonnes of lower bonded stocks suggests a substantial deficit.”

The problem that faces Natixis, however, is trying to figure out how much of these withdrawn stocks have actually been consumed.

The group then posits 3 different models in a bid to solve that question. The first supposes that Chinese imports of refined copper have averaged roughly the same as in 2012 – “somewhere around 280,000 tonnes per month”.

Such an assumption, taking the data from the first five months of the year, would imply, “Chinese destocking of a little over 300,000 tonnes of copper, followed by a neutral effect between June and August”.

The second model, examines the data under the assumption that Chinese end-user demand for copper grows in line with GDP.

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