re: lme copper stocks double possible reason http://metalsplace.com/metalsnews/?a=4168
Copper stocks at China's Shanghai Futures Exchange warehouses have fallen sharply in recent months, but that is not necessarily a sign of increased domestic demand, traders and analysts say.
Copper stocks at SFE warehouses fell by a steep 16,476 metric tons to total 39,678 tons at the end of last week.
"(Some people in) the market believe this is a reflection of strong demand in China. This is not true. Virtually nowhere is demand robust; it varies from being okay to quite weak," industry consultant Simon Hunt told Dow Jones Newswires in an interview this week.
On the other hand, much of the decline in stocks can be attributed to the country's State Reserve Bureau moving copper for delivery against suspected short positions, said Man Financial analyst Edward Meir.
China was at the centre of a controversy last November after news emerged that Chinese copper trader Liu Qibing went missing after building large loss-making short positions on the London Metal Exchange on behalf of the SRB.
SRB manages China's commodities reserves including that of copper and is affiliated to the National Development and Reform Commission, China's top economic planning agency.
According to state media reports, Liu went short by 130,000 tons of copper at a price of $3,300 a ton, with the intention of buying it back at a lower price and booking a profit.
Copper prices on the other hand continued rising, reaching a high of $5,110/ton in early February before easing off slightly since then. Three-month copper is currently trading around $4,780/ton on the LME.
SRB has never acknowledged the short positions or any direct losses from them, but in January the agency said it will ban its units and associates from trading in futures contracts to curb speculative trading losses. To date, Liu's whereabouts remain unknown.
LME copper stock rise possibly Chinese deliveries
Similarly, rising LME copper inventory levels are also not a sign of global supply easing, but rather a reflection of a relocation of stocks, said UBS base metals analyst Robin Bhar.
Since the beginning of November, around the time the alleged short positions were reportedly uncovered, copper stocks at LME warehouses have risen by 56,150 tons to total 121,175 tons Monday.
Stocks are up nearly 385% from the low of around 25,000 tons in the middle of last year.
Most of the metal entered warehouses in Singapore and Busan, South Korea, the closest LME-registered warehouses to China.
Stocks in Singapore rose to 21,975 tons Monday from 14,000 tons at the start of November, while Busan stocks have reached 73,250 tons from 17,375 during the same period.
Market participants said the proximity of these warehouses to mainland China offered the cheapest option for the SRB to ship copper there.
The amount of copper delivered to the warehouses so far is roughly in line with market speculation that around 50,000 tons of copper would be delivered, said a Shanghai-based analyst.
The rest of the SRB's alleged short positions have either been covered or rolled forward to dates spread over a three-year period, said local traders.
Possible disruptions cast shadow on supply
Meanwhile, market participants are expecting global copper to be in a deficit of anywhere between 50,000 tons and 250,000 tons this year.
But substitution with cheaper materials such as plastic due to high copper prices, coupled with a slowdown in global economic growth on the back of rising interest rates and crude prices, may potentially dampen demand for the red metal this year, some analysts said.
While this may move the market into a balance, a slew of labor contract expiry dates lined up this year may just tip the scales back to a shortfall, said a Shanghai-based copper trader.
Workers at Chile's Corporacion Nacional del Cobre de Chile, the world's largest copper miner, are scheduled to start fresh wage negotiations their current labor contracts expire in October.
Codelco has already experienced labor woes earlier this year as employees of contracting companies went on strike in January seeking a bonus and improved working conditions, following soaring copper prices.
Just last week, Mexican miners, including those at the country's two largest copper mines, La Caridad and Cananea, owned by Grupo Mexico SA, staged a two-day nationwide strike.
Grupo Mexico, the world's third largest copper miner, said it expects the cost of the walkouts to be minor.
Last month Freeport-McMoRan Copper & Gold Inc.'s suspended production at its Grasberg mine in Indonesia for three days following protests by illegal miners.
The mine, located in Indonesia's Papua province, is the largest gold mine and third largest copper mine in the world.
The company said shipments were not affected by the suspension, but hasn't given an estimate of actual production losses.
Although the recent disruptions did not have much impact on copper output worldwide, traders and analysts said global supply remains critical as further disruptions could easily occur.
Other labor contracts that are set to expire some time this year include those at Falconbridge's Horne copper smelter and CCR copper refinery in Montreal, Inco's Copper Cliff refinery in Sudbury, Ontario, and Teck Cominco Ltd.'s Highland Valley copper mine in British Columbia.
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