China’s copper inventory rebounded to record level15 August, 2012, 14:44. Posted by Zarathustra
Last week’s China trade data pointed to weak domestic demand and even weaker external demand. Now everyone knows that.
Yet imports of unwrought copper was still up in July, as Nomura pointed out last weak. On a month-on-month basis, unwrought copper imports have risen by 5.9%, and was up 19.5% on a year-on-year basis (and compare that with a slight decrease in iron ore imports on a month-on-month basis, for example).
And this is interesting because with slowing economy, slowing manufacturing, slowing construction (you name it), demand for copper should be weak.
Source: Bloomberg Brief
Although there used to be a seasonal pattern of destocking around this time of the year, Nomura pointed out that inventory is climbing as demand is weakening while imports are holding up. The build-up of copper inventory is probably related to the copper financing deals. In case you are not already aware of this, some firms use copper inventory as collateral to obtain financing. This is not something new, as FT Alphaville has discussed this for many times.
In fact, Nomura believed that significant amount of bonded copper was purchased for financing purposes:
Bonded warehouse inventories increased by 50kt in July. Given the strong language used by policymakers to maintain property curbs, we believe the increase in imported copper this month was driven by increased demand for copper as financing vehicle by sectors such as properties still under credit control.
The result of this inventory build-up? Well, according to Standard Chartered, total copper stocks in China have rebounded to the record level of about 1mt after falling slightly in previous months. Now, the amount of copper stacked up in warehouses are so huge that it is literally ground-breaking, i.e. destroying the ground.
Source: Standard Chartered
The ground has finally cracked under the weight of China’s copper inventories (Figure 1). We noted in April (On the Ground, 26 April 2012, ‘Copper – Cu at the warehouses’) that copper bundles were stacked to the maximum allowable height before the ground cracks – but copper kept coming in. We recently revisited a major warehouse in Waigaoqiao and found copper bundles stacked nine-high (Figure 2), compared with six-high in April. The inflow is not slowing (Figure 3).