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China has for the first time revealed the estimated size of its copper inventories, shedding light on one of the commodity market's biggest mysteries.
Chinese copper inventories stood at 1.9 million tonnes at the end of 2010, more than the U.S. consumes in a year, according to estimates by the state-backed China Non-Ferrous Metals Industry Association. The estimate is significantly higher than the 1.0-1.5 million tonnes range that foreign executives have assumed in the past.
The estimates, which were announced at a recent meeting of the International Copper Study Group but have not been made public, imply that real Chinese copper demand may have been lower than thought in recent years.
Movements in Chinese inventories are one of the most important price drivers for the global copper market. A buying spree in early 2009 by the country, which now accounts for about 40 per cent of global copper demand, helped trigger a price rally from the lows of the financial crisis to new records this year above $10,000 a tonne.
The new stock estimates were presented at the last meeting of the ICSG, a group representing the governments of large copper-producing countries and consumers, in Lisbon at the end of September, according to several people who attended.
According to people who were present at the ICSG meeting, the CNIA estimated that Chinese copper stocks, not including those kept at Shanghai Futures Exchange warehouses, stood at 1.768 million tonnes at the end of 2010, up from 1.218 million in 2009 and 282,000 in 2008. SHFE inventories were 132,000 tonnes in 2010, putting China's total stocks at 1.9 million tonnes.
Other than exchange stocks, copper is held as working inventory by China's manufacturing sector as well as by merchants, investors and the State Reserve Bureau, Beijing's stockpiling agency. However, analysts, investors and traders are sceptical, noting that the world's largest copper importer and consumer has an interest in inflating the size of its stockpiles, which could push prices down. The CNIA declined to comment.
"Whatever the Chinese say that stocks are, in the end they still need copper," said George Cheveley, metals and mining portfolio manager at Investec Asset Management.
The ICSG has yet to incorporate the new estimates into its supply and demand data. "The decision by the members was to defer using the new stock data pending more detailed confirmation of its source and content," said Daniel Edelstein, chair of the ICSG's statistical committee.
Beijing releases only sketchy information about its supply, demand and inventories, creating a statistical vacuum that is contributing to price volatility.