(Minews) - Expectations that falling stocks of copper in exchange-registered warehouses signpost stronger consumption and higher prices are likely to be disappointed, as metal leaving warehouses does not translate into usage.
Material exiting warehouses registered with the London Metal Exchange or the Shanghai Futures Exchange does often augur a potentially tighter market.
But not this time. Metal industry sources say copper leaving exchange warehouses is just a shuffling exercise to give the impression of stronger demand. They expect it to again become visible as the year passes.
Sources say metal is simply being stored elsewhere, artificially creating a sense of increased demand.
"There is no shortage of copper, it is just a perception being created by lower exchange stocks, said Christoph Eibl, chief executive officer at Tiberius Asset Management.
Copper demand growth in top consumer China, accounting for about 50 percent of global consumption, has slowed alongside economic growth and real estate investment.
"We are at the end of the industrialization cycle in China, saturation has kicked in," Eibl said.
"Copper is one of the few commodities which still has high producer margins. To see pain in copper production you need to see prices fall to $5,000 or below."
Benchmark copper at around $5,800 tonnes is near three-month lows. Prices of the metal used in power and construction have tumbled about 10 percent since early May
Producer profit margins have been boosted in countries such as top producer Chile and Indonesia where local currencies have fallen against the U.S. currency, which boosts sales revenues for copper priced in dollars.
Also a plus for producers overall are lower costs due to factors such as falling energy costs.
Copper stocks in LME approved warehouses at 317,700 tonnes are up about 10,000 tonnes since June 9. Between May 1 and June 9 they fell 33,300 tonnes to 308,025 tonnes.
SHFE inventories at 125,191 tonnes are down about half since early April. Copper stocks in bonded warehouses in Shanghai are estimated at around 600,000 tonnes, down from a peak of 800,000 tonnes in May 2014 ahead of the Qingdao scandal, according to GFMS analysts.
Edward Meir, metals analyst at INTL FCStone cites data from Chile, where exports have crashed in recent months, while output is effectively flat.
"We wonder where some of this metal is going if not being exported and have to suspect that producer stocks must be growing," Meir said.
Highlighting excess copper supplies is the discount for cash metal over the three-month contract on the LME, which this week rose to $31 a tonne, its highest since 2013.
The cash contract commanded a premium of $81 in Jan.
