A wave of copper is currently washing up in London Metal Exchange (LME) warehouses.
Arrivals of metal have totalled 73,325 tonnes this week, lifting headline exchange inventory to 271,575 tonnes, the highest level since October last year.
There’s no big mystery as to where this metal is coming from.
Surging arrivals at LME sheds in Singapore and South Korea have broadly corresponded to export flows out of China.
And in part this is no more than a continuation of the stocks rebalancing that has been playing out for several months, a refilling of a depleted LME system from high inventories in China that accumulated earlier this year.
But unlike the mini surge of LME arrivals in early June, there is no obvious bull-bear battle being waged across the front part of the London copper curve.
If no-one is being forced to deliver metal against a short position, the alternative explanation would be that this is China pushing out surplus.
If so, it would mean that copper oversupply, already clear to see at the raw materials stage of the supply chain, is finally starting to take manifest form in the refined metal arena.
It’s not unusual for LME copper stocks to trend higher during the dog-days of northern hemisphere summer as manufacturing activity drops a gear.
And, conforming with that pattern, warranting of metal has taken place at a wide variety of LME good delivery points, including Hull in Britain, Bilbao in Spain and several US
locations.
But the real stand-out has been the accelerated flows at Singapore, which has received almost 95,000 tonnes since the start of June, and South Korea, which has taken in 103,000 tonnes.
Both countries have also featured prominently in China’s export profile over the same period of time.
Customs data shows exports of 89,000 tonnes to Singapore and 76,000 tonnes to South Korea since March, when China’s exports first started accelerating.
Between them Singapore and South Korea have accounted for almost 60% of all outbound flows.
The correspondence between Chinese exports and LME arrivals isn’t perfect (see the chart above) but the broad picture is one of metal leaving China and turning up in the most easily shippable LME locations.
The question is whether this metal is being pushed or pulled.
A mini-surge of copper arrivals in the LME system in early June bore all the hallmarks of a distress delivery by a short position holder facing a cash-date squeeze. What’s noticeable about the current flood is that there is no similar tension in the LME spreads.
True, the LME’s market positioning reports show a dominant long holding between 50-80% of non-cancelled stocks and 40-50% of cash positions as of the close of business on Wednesday.
But ever since the bull-bear battle of early June the front part of the curve has been trading in benign contango.
The cash-to-three months period traded as wide as $27 per tonne backwardation in late May.
As of Thursday’s close it was valued at $9 per tonne contango.
The very front part of the curve, between cash and the September prime prompt on the 21st of the month has tightened up a little over the last couple of days but is still only quoted at level.
Any pull on extra units to alleviate LME spread stress is currently weak, in other words. That’s not to say there is no gravitational pull at all, rather it has been coming in the form of incentives offered by LME warehouse operators in the Asian region.
That particular magnet, however, only really works if the incentives are competitive in terms of physical premiums, first and foremost in China itself...Which it seems they are.
Premiums for delivery to China are trading at a soggy $45-50 per tonne over LME cash prices, according to LME broker Triland Metals. To put that figure into context, remember that Chilean producer Codelco’s “benchmark” premium covering 2016 shipments to China was set at $98 per tonne.
Nor is there any obvious indication of tightness within the mainland market, Triland again noting that the domestic premium structure is largely flat against front-month Shanghai Futures Exchange contracts.
All of which tells us that the Chinese market right now seems very comfortably supplied, if not oversupplied, with physical refined copper units.

*Andy Home is a columnist for Reuters. The views expressed are those of the author.
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