Copper Prices Plummet as China Increases Base Metal Export to Asian Warehouses

Base Metal Inventories Surge in Asia

The base metal that previously led the 'Next AI Trade' is now under significant strain. Copper inventories in Asian warehouses are rapidly increasing, with the metal hitting a four-month low. The refined metal is being exported from China to warehouses in neighboring countries such as South Korea and Taiwan, indicating that a further decline in prices may be on the horizon.

Surge in Copper Stockpiles

Adam Gillard from Goldman Sachs informed clients that the surplus of copper continues to grow, suggesting that prices will continue to drop despite recent positioning adjustments. Gillard noted that copper stockpiles at the London Metal Exchange in Asia have reached their highest levels since mid-2018. Since hitting a peak at $10,889 in mid-May, LME 3-month rolling forward copper prices have dropped by over 18%, now sitting around $8,928.

Unexpected Delivery from China

While it's not uncommon for Asian inventory builds to come from legacy Chinese tolling exports, a recent 40k MT delivery was unexpected. This delivery was surprising given that it was assumed most of China's exports had already been accounted for. This suggests that there may be more metal available than initially thought.

Global Inventory Levels Rise

The surge in warehouse stockpiles is now reflected in global inventory levels. If we take the 40k MT from July US imports and add it to CMX inventories, the total visible copper inventory stands at 794k MT, a significant increase from 262k MT at the start of the year.

China's Economic Slowdown

The rise in warehouse inventories is indicative of a continued slowdown in China. The world's second-largest economy has been exporting at unusually high volumes in recent months, effectively exporting deflation. There are also growing concerns about a potential slowdown in the US. Despite this, Chinese smelter production remains above average.

AI Theme Overshadowed

It's clear that the AI theme has taken a backseat for now, with China's exportation of deflation to the world taking precedence. This comes after Jeff Currie of the Carlyle Group previously stated that the copper trade was the most compelling trade he had seen in his 30 years in the industry.

Bottom Line

This sudden shift in copper inventories and prices raises several intriguing questions about the future of the base metal market. What do these changes mean for the global economy, and how will they impact future trading strategies? We'd love to hear your thoughts on this matter. Don't forget to share this article with your friends and sign up for the Daily Briefing at 6pm every day to stay informed.