LME bonded Copper stocks fall below 100 kT , way below their usual range of 200 kT to 300 kT.
Traders are either convinced that demand will drop to below supply or that supply will ramp up to exceed demand. it’s interesting to note that the last two dips in copper stocks did not result in a price surge and in both cases supply was ramped up to meet demand.
Will suppliers be able to ramp up production during the Covid-19 pandemic ?
Will South american producers be able to ramp up production during the current drought ?
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Copper price is holding steady at £5.15 / kg as bonded warehouse stocks fall to 145 kT.
The falling copper stocks are the result of supply chain issues rather than being driven by demand and the question is how long will it take for the copper producers to take advantage of the highest price in two years to ramp up their production in the current pandemic and climate environment ?
Also, how long will buyers be able to put off buying more copper at this price ?
Traders are unlikely to want to push the price above the last nine year peak and risk being caught out holding expensive stocks once supply recovers form the current disruption.
Copper price has fallen on fears for the world economy following the virus in China and potential implications for the flow of trade to and from China, even though all China cargo routes are still open.
With laboratories around the world racing to be the first to find a vaccine for the virus it’s just a matter of time before the economic outlook improves and the price of copper rebounds.
I can understand stocks continuing to fall as the global economy recovers but I cannot understand why the price of copper is no rising.
In a supply / demand economy the price of copper should be increasing with falling stocks, which are close now to the lowest they have been in the last decade. Dealers must have the opinion that either demand will drop off or that supply will increase.
However, the risk from copper prices not tracking stocks is that when the market does react it will over react and push the price of copper into a higher than necessary peak, with subsequent disruption to markets.
The price of copper has jumped from £4.55 / kg to £ 4.68 / kg over the last week as stocks fell from 190 kT to 162 kT.
This may be due to supply issues but more likely has been caused by an upturn in the global economy as the USA and China edge towards a trade agreement.
Whether the price of copper will stabalise depends on how quickly copper suppliers can respond. If they are sitting on stocks then they could ship them to the LME warehouses relatively quickly. However, the producers may also sit tight and pocket the profit from a market that has turned from demand driven to supply driven.
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