Scramble for Copper as LME Stocks Plummet, Fueling Supply Concerns

The London Metal Exchange (LME) is witnessing a renewed scramble for copper as its warehouse stocks continue to dwindle rapidly. Over the past three weeks, LME copper stocks have declined from 100,100 tonnes to 77,050 tonnes, despite receiving almost 30,000 tonnes of new arrivals. However, the incoming copper is being quickly turned around and shipped out, leaving just 31,900 tonnes available for the global market, enough to supply demand for approximately 11 hours.

This unexpected drain on LME copper stocks is perplexing given the weakening manufacturing activity in Europe and the United States. While the closure of Boliden's Ronnskar smelter in Sweden has created a supply gap in the European market, the depletion of LME stocks started before the fire incident at the plant on June 13, and the focus has been on Asian and U.S. locations rather than Europe.

This trend is not confined to the London market alone, as copper stocks across the globe are also running low. Combined copper stocks registered with LME, its U.S. counterpart the CME, and the Shanghai Futures Exchange (ShFE) currently total 165,000 tonnes, down by 45,500 tonnes since the beginning of the year, reaching their lowest level since 2008.

The Shanghai Futures Exchange, experiencing tightness across the front part of the curve since March, has seen a significant decrease in bonded stocks held by its international arm. These stocks have plummeted from nearly 89,000 tonnes at the start of the month to just 35,000 tonnes. Similarly, other bonded stocks in Shanghai have also decreased from a peak of 185,600 tonnes in March to 66,400 tonnes.

While higher domestic production in China may help alleviate the tightness in the Shanghai market, the country's net draw on copper from the rest of the world has increased, reaching 276,000 tonnes in May, the highest monthly total since January. The rise in the Yangshan copper premium, an indicator of China's import appetite, further suggests a strong demand for copper imports.

However, conflicting signals in the copper market persist. LME three-month copper briefly reached a two-month high of $8,868 per tonne last week but has since retreated to $8,380 per tonne. The limited price reaction and relatively constrained backwardation across the curve indicate market speculation that there may be more copper available in private stocks.

As the pace of LME arrivals in recent days demonstrates available units for exchange warranting, it remains uncertain whether global exchange inventory will rebuild during the seasonal summer soft spot for northern hemisphere demand or if the market needs to reassess the actual availability of copper. The depleted visible inventory in the LME warehouse system presents a bullish sign amidst an otherwise bearish landscape, raising questions about the true extent of copper supply.

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