LONDON (Reuters) - Is there further price pain in store for copper?
Views on that question remain as polarized as ever between bulls and bears.
Wall Street heavyweight Goldman Sachs continues to beat the bear drum, sticking to its forecast that the price will fall to an average $4,500, $4,200 and $4,000 per tonne over the next three, six and 12 months respectively.
Others such as ICBC Standard Bank are unconvinced, arguing that “the risk of a significant price movement is asymmetric and very much skewed to the upside.”
The copper price itself is offering few clues. The London Metal Exchange (LME) three-month price is currently trading around $4,580 per tonne, still gyrating within a range defined by January’s low of $4,318 and March’s high of $5,131.
Short-term direction is downwards as LME stocks rebuild and spread tension eases but in large part this is no more than a swing of the stocks pendulum from Shanghai to London markets.
LME-registered copper inventory fell by 90,200 tonnes to 143,300 tonnes over the first quarter of the year.
It has since stabilized and started to rise again.
The amount of metal sitting in exchange warehouses currently stands at 158,600 tonnes. On-warrant stocks, excluding metal earmarked for physical load-out, have crept up from an April 5 low of 95,775 tonnes to a current 127,025 tonnes.
Not surprisingly, these trends have served to take some of the tension out of the London market’s nearby spread structure.
The cash premium over three-month metal has eased to $10.75 per tonne as of Wednesday’s close from $33.50 in late March. Earlier this week it even flirted with flipping back to contango for the first time since January.
However, a drill-down look at where copper has been arriving in the LME warehouse network is instructive.
Inflow has totaled 65,175 tonnes since the start of April and all but 9,325 tonnes of it has come at just four locations.
Singapore has received 25,550 tonnes and the two South Korean ports of Busan and Gwangyang 20,025 tonnes between them, while Kaoshiung in Taiwan has taken in 10,275 tonnes.
All are conveniently located for both shipments out of China and diversions of metal en route to China.
And China, right now, is still digesting the glut of imports that flowed into the country in the first months of the year.
Graphic on LME and ShFE monthly stock changes:
LME copper stocks “arrivals” by location:
China imported 1.11 million tonnes of refined copper in the January-March period. That was a record for first-quarter imports.
With domestic production also rising and internal manufacturing usage lukewarm at best, much of this inflow went into storage.
Stocks registered with the Shanghai Futures Exchange (ShFE) more than doubled to 386,000 tonnes over the first quarter, eclipsing those held in the LME system for the first time since 2005 as they did so.
Metal held in the bonded warehouse system also surged from 490,000 tonnes in mid-March to 600,000 tonnes a month later, according to analysts at Macquarie Bank citing figures from the CRU research agency.
Physical premiums for bonded copper sagged and are still insipid at just $40-50 per tonne, according to LME broker Triland Metals.
The net result has been a diminution in China’s appetite for refined copper units.
Imports appear to have dropped several gears in April. The preliminary aggregate figure for unwrought copper imports fell 21 percent month-on-month from March levels.
It is possible that exports accelerated as well. March’s tally of 23,375 tonnes was the highest since May last year and included the first shipments to both South Korea and Singapore since the third quarter of 2015.
More clues will come with the release of the full April figures next week.
But the key outcome has been a reversal of the early-year stocks trend.
ShFE inventory has slid by 81,215 tonnes since the start of April and bonded inventory, again according to figures sourced from CRU, slipped again to 560,000 tonnes at the end of the month.
Just as the London market structure has loosened under the effect of the displacement flow of metal, the Shanghai market has shown tentative signs of tightening with a small backwardation creeping into the July-August spread.
In essence the global copper stocks picture is one of a rebalancing away from a glutted Chinese market to a depleted LME market.
Total exchange inventory, including that held in COMEX warehouses in the United States, currently stands at 498,115 tonnes. The cumulative year-to-date change is a marginal increase of just 35,000 tonnes.
That paints a picture of a broadly balanced market, although the swing of the stocks pendulum from China to the LME warehouse system is generating a fair amount of noise around that underlying signal.
The rebalancing does have significance in terms of the spread structures of both London and Shanghai markets.
But it tells us little right now about whether the bulls or the bears are right in their views of where the outright price is next headed.
The polarised debate as to whether copper has seen its cycle lows or is merely marking time before another leg down is, it seems, going to rage for a while longer.
Editing by David Evans