China’s copper inventories are growing at exactly the time of year when they should be shrinking fast — an anomaly that underscores concerns about demand in the world’s biggest market.
Stockpiles of the metal held in Shanghai Futures Exchange warehouses ended last week well above 300 000 t. That’s not the biggest volume ever, but it is the most for any end-of-May date on record. In China’s highly seasonal economy, inventories typically peak in March and slide lower as factories ramp up activity heading into the summer.
Recent data on Chinese manufacturing has painted a mixed picture. The official factory gauge for May slipped into contraction, while a private survey — more focused on smaller and export-oriented firms — showed a modest improvement.
The rise in China’s inventories reflects what some analysts see as a divergence between the global mood on copper, which hit a record above $11,000 a ton last month on fears of a looming shortage, and poor demand from Chinese processors of the metal.
Recent trading suggests that weak Chinese conditions, which revolve around a slowing economy and a protracted crisis in the housing sector, have begun to weigh more heavily on the market. Prices on the London Metal Exchange are now below $10 000 — an unwinding of “excessive optimism,” according to Capital Economics.
There are plenty of other indications that Chinese demand is suffering. Buyers of imported copper are now able to demand a discount, rather than the typical surcharge, on international prices, with the the so-called Yangshan premium dropping to negative levels since last month.