Interesting article today on S T o c K h E a D about the falling...

Interesting article today on S T o c K h E a D about the falling price of base metals & the also falling available inventories in LME stores, etc. Something has to give soon enough

https://st**kh**d.com.au/resources/why-are-metal-inventories-so-low-and-what-does-it-mean-for-base-metals/

Over the past 6 to 8 months prices of all of these commodities have trended down, despite the short-term bump provided by Russia’s invasion of Ukraine and the likely banning of Russian metal by many customers.

The primary reason has been faltering demand from a slowing China, which has been hit by a wave of lockdowns to limit the spread of Covid-19.

That has seen the price of copper drop 20% over the past 6 months, nickel is down around a third (though still above levels of 12 months ago), zinc is off almost 30% and aluminium has dropped heavily as well.

With falls like that you’d think buyers are shunning commodities and unwanted metal is building up in warehouses like a hoarder’s dream.

But in reality stocks are even lower than the critical levels they hit a few months ago.

“If inventories are rising, generally you tend to see perhaps a cap or a negative trend in the relevant commodity pricing and where we are in the market’s really interesting at the moment,” Mine Life Analyst Gavin Wendt told Stoc****d.

“I was looking at copper. Copper prices, and copper inventory should be under pressure, because there are all sorts of alarm bells out there about the world economy and copper is tied directly into economic growth expectations.

“If I told you there were declining copper inventories, not only on the LME, but in Shanghai and elsewhere, the ordinary person would be really surprised by that.”

Copper stocks running low: Trafigura

One of the world’s largest traders, Trafigura, says copper stocks are running so low there is a touch under 5 days’ inventory left on the various exchange inventories.

By the end of the year, its head of mining and metals trading Kostas Bintas told a summit hosted by the Financial Times last week, it could fall to just 2.7days.

Yikes.

Bintas says recession fears are not reflecting the reality of the physical coppermarket, with demand from electric vehicles going forward to more than make upfor declines from the Chinese property sector.

Freeport McMoran CEO Rick Adkerson called the dissonance between real and financial markets on the commodity ‘striking’, saying on a recent conference call physical premiums were showing how strong demand actually is for the red metal, calling inventory levels “historically low”.

A market in backwardation, a situation where prices for metal now are higher than contracts for future delivery, suggests how hard it actually is for consumers to get their paws on the commodity.

“Backwardation is strong,” he said. “It’s just striking to see that the price of copper dropped $0.70 from a quarter a year ago and yet the day-to-day business that we have is one where customers are really fighting to get product.”

According to ANZ commodity strategists Daniel Hynes and Soni Kumari , copper stockpiles on the LME currently sit at around 1.95 days of global demand. They normally cover 5-10.

Total exchange inventories have fallen an almost unbelievable 70% since the start of the pandemic.

“The premium for cash copper over three-month futures on the LME has traded as high as US$133/t in recent weeks,” they wrote in a note this week.

“This is opposed to a small discount as recently as July 2022. Zinc and lead futures curves are also in deep backwardation (ie spot prices lower than futures).

“The most notable sign of tight physical markets is the continued fall in inventories.

“Total exchange inventories for the base metals complex hit a record high of nearly 9Mt in mid-2013 following the huge ramp up in supply as demand rebounded
following the financial crisis in 2008.

“Since then, those inventories have fallen nearly
90% to around 1Mt.”