Yahoo Finance Falling Chinese Copper Inventory: Good News for Freeport-McMoRan?
A Deeper Dive into May 2016 Copper Industry Indicators
Chinese copper inventory
In the previous part of the series, we saw that China’s bonded copper stocks rose last month. Along with these bonded stocks, investors should also be looking at the official copper inventory in the SHFE (Shanghai Futures Exchange). SHFE copper inventory reached record highs in March and surpassed copper inventory in the LME (London Metal Exchange).
Inventory has been falling
The graph above shows the trend in SHFE copper inventory. As you can see, inventory has been in a falling trend since mid-March. SHFE copper stocks fell 137,000 metric tons from their March highs. China’s copper inventory surged earlier this year as the country imported record amounts of copper. Since the increase in imports wasn’t matched by commensurate end-user demand, copper found its way into warehouses.
Fewer imports
In April, China imported 450,000 metric tons of unwrought copper and copper products, a decline from 570,000 metric tons in March. The falling trend in SHFE copper inventory suggests that Chinese copper imports could be subdued in May as well. Chinese copper imports are a key driver of copper prices.
We should note that China isn’t self-sufficient when it comes to raw material needs. It’s also the world’s largest copper consumer. China needs to import raw copper for its smelters and refining plants. While copper mining is concentrated in Latin America (ILF) (EPU), more than half of the world’s copper is consumed in Asia.
China is the largest importer of copper ores, anodes, and refined copper. Miners such as Freeport-McMoRan (FCX) and BHP Billiton (BHP) depend on Chinese metal demand. To cater to China’s copper demand, Rio Tinto (RIO) is expanding its Oyu Tolgoi mine (TRQ) in Mongolia.
In the next part of the series, we’ll look at copper’s short-term outlook.
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