COLUMN-Andy Home: Who's got all the copper?

(Repeats earlier column. Andy Home is a Reuters columnist. The opinions expressed are his own)

By Andy Home

LONDON, Sept 26 (Reuters) - September has been a cruel month for industrial metals with prices sinking pretty much across the board.

At the heart of this weakness lies growing concern about the Chinese property market, one of the pillars of the Chinese growth story and one of the most important drivers of global metals demand in recent years.

Worst affected and grabbing most of the headlines has been iron ore, which is now trading at levels last seen in 2009. Not only is it one of the commodities most exposed, via steel, to any slowdown in Chinese construction activity but it is a market struggling to absorb a wave of new supply surging out of Australia's Pilbara production hub.

But price weakness has also played out across the suite of base metals traded on the London Metal Exchange (LME), where fear of Chinese slowdown has been compounded by dollar strength, a negative for dollar-denominated commodities. The LME index has fallen by almost five percent since Sept. 8.

The most resilient among the LME metals has arguably been copper, down "only" 3.6 percent over the same period as of Wednesday's closing valuation of $6,742 per tonne.

This is strange since copper, like iron ore, is both massively dependent on Chinese demand growth and experiencing its own supply surge as mine production rebounds from years of systemic shortfall.

However, unlike iron ore, there is still no tangible sign of surplus. Visible stocks remain extremely low and, in the case of the LME, are largely controlled by one entity.

Famine in a time of expected feast has characterised the copper market for many months and until this tension is resolved, copper is going to remain a dangerous market for bears. ******************************************************* Graphic on LME stocks and spreads: http://link.reuters.com/jah92w Graphic on exchange stocks distribution: http://link.reuters.com/zah92w *******************************************************

STOCKS LOW, CONCENTRATION HIGH

Combined copper inventory on the world's big three exchanges, LME, COMEX and Shanghai Futures Exchange (SHFE), currently stands at 265,000 tonnes.

Stocks have risen a bit over the last couple of months, unsurprisingly since the Northern Hemisphere summer is a seasonally slow time for manufacturing activity. But they remain low by any historical benchmark.

The last time exchange inventory was persistently running at this sort of depleted level was back in 2008, when the copper price was trading above $8,000 per tonne.

Moreover, almost half of the global total is located in LME warehouses in New Orleans. The U.S. city holds 132,025 tonnes of registered metal, which accounts for 85 percent of the LME total.

So too does the entity that has been maintaining a strangle-hold on the front part of the LME copper curve for several weeks.

The exchange's latest dominant position reports show a single player holding 80-90 percent of available stocks, meaning the 122,850 tonnes of non-cancelled tonnage. Throw cash date positions into the mix and the level of control rises to over 90 percent of available stocks.

A position of this size triggers the LME's automatic lending guidance, which caps the degree of pain among shorts trying to roll positions forwards from the cash date.

That may be why the benchmark cash-to-threes spread, although volatile, is still relatively benign at $36.50 backwardation as of Wednesday's valuations.

CHINA CONUNDRUM

Of course, visible stocks are only part of the overall inventory picture.

A far larger part is the mountain of metal sitting in China's bonded warehouse system, much of it acting as collateral in the country's shadow credit sector.

LME spreads, it has been argued, have been behaving as if this metal were, given the right incentive, available to LME shorts.

It's a theory that has been tested and found wanting by the Qingdao port scandal. When news first broke of official investigations into multiple pledging of metal for loans, the copper price briefly swooned at the thought of hundreds of thousands of tonnes heading from China's bonded warehouse zones to LME warehouses in Asia.

But it didn't happen.

A lot of copper was relocated within China in favour of established-name warehouse operators. Very little appears to have actually left the country.

Moreover, bonded stocks are now falling. Hard figures don't exist but Reuters reported at the start of September that the amount of metal sitting in the Shanghai bonded zone had fallen by 50,000-100,000 tonnes to 500,000-550,000 tonnes over the month of August.

That's another curious thing about the copper market right now.

China has been sucking in huge amounts of copper concentrate. Refined production in August hit a record high as the country's smelters lifted their run rates. Imports have been falling. Visible stocks on the SHFE have also been tumbling.

All of which suggests extremely robust demand in a country that is otherwise showing every sign of slowdown, particularly in the metals-intensive property and manufacturing sectors.

It's possible that the State Grid, a major buyer of copper and one that follows its own investment cycle, is providing an offset to demand weakness elsewhere.

It's also possible that China's State Reserves Bureau (SRB), the most opaque part of the global inventory landscape, has been quietly soaking up the copper being released from bonded warehouses.

What's not in doubt is that tangible signs of surplus seem to be as elusive in China as they are everywhere else.

SELLER BEWARE

Most analysts are still convinced that it's only a matter of time before raw materials surplus translates to refined metal surplus.

That record August run-rate for China's refined copper output suggests that the process of transformation is underway.

But until visible inventory, particularly that on the LME, starts visibly rising, copper is going to remain relatively resilient to the broader China slowdown jitters that are riling other metal markets.

The LME's arcane prompt date system means that no-one leaves the game without having to adjust their positions across the nearby spreads.

Bearish short-sellers, in other words, have to factor in the bull that is keeping such a tight grip on both stocks and spreads.

But it's a stand-off predicated on the broader, global phenomenon of curiously elusive copper surplus. (Editing by Susan Thomas and Dale Hudson)