Skip to main content

Low inventories across the copper supply chain mean that any resolution to the U.S.-China trade war could trigger a snap rally in prices as consumers rush to restock, market participants said on Tuesday.

Combined stocks of on-warrant copper in London Metal Exchange and Shanghai exchange warehouses have declined 50.5% since mid-August metal buyers have slowed replenishment rates.

Declines in warehouse stocks are often seen as a sign of robust demand in the main industrial demand centers for the metal, used in construction and power industries.

Story continues below advertisement

But low stocks also reflect a risk reduction strategy by consumers who have switched to making hand-to-mouth purchases that avoid building any inventories not already ordered by a customer, delegates at an LME conference in Singapore said.

“Trade war concerns have been going on now for over 12 months and, understandably, participants all the way through the supply chain have de-stocked to reduce risk,” said Guy Wolf, head of market analytics at broker Marex Spectron in Singapore.

“But once the market has certainty about the trade and tariff outlook... the psychology will completely flip, because everyone will want to restock. They’ll fear that prices will run away from them,” he said on the sidelines of the conference.

But the current lack of certainty over how the tit-for-tat spat will play out is making traders cautious about making new purchases, he said.

“If it’s the imposition of a new tariff... you can’t hedge that risk. That’s why people are trying to minimize their exposure.”

Julie Zhu, a director at Singapore-based Viant Commodities, said the market in China was slow.

“I think the best indicator is to look at the bonded warehouse copper stocks. It’s 200,000 tonnes of metal, which is a third of its peak in 2017. Usually copper is a great indicator of the Chinese economy ... so the fact that it has dropped by two thirds tells us lots.”

Story continues below advertisement

Shigemoto Toma, a senior base metals trader with Anglo American, said China’s infrastructure investment could boost copper demand by as much as 3-4% in 2020, which could impact prices due to “not much of a (stocks) buffer.” .

“All in all, if we see a resolution to the U.S-China trade tensions, we are likely to see substantial upside.”

LME copper traded at about $5,834 a tonne on Tuesday, down 0.8% on the day and 2.2% for the year.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies