Rumours Of Secret Copper Stockpiles Unfounded

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

By Chris Shaw

Recent reports in the financial media have suggested there could be as much as 800,000 tonnes of copper being hidden in Chinese port warehouses as anyone from hedge funds to actual merchants in the metal attempts to push up prices by making the supply/demand balance in the copper market look tighter than it actually is.

But as Barclays Capital points out such a rumour has often done the rounds in the copper market in the past and having previously been unfounded the latest rumour is likely to be nothing more than that, as the logistics and cost of conducting such an operation would simply be uneconomical.

For instance, the group points out the cost of financing such a stockpile of physical metal would be something in the order of US$250 million, which would require a US$300 per tonne increase in the price to justify. Given copper in the past month has traded in a US$1,000 per tonne range it would also imply whoever is behind such a stockpile has an ability to withstand an extreme level of financial risk.

Then there is the physical space needed to store the metal, which on the group’s numbers and using standard cathodes as a measure would require floor space in the order of six football fields, even allowing for no space between the various piles. Assuming a more normal storage arrangement would mean a space about double this size would be required.

The other point to note according to Barclays is there is no statistical support for such a hoarding of copper, as by assessing the difference between global reported copper stocks and the estimated market balances according to a number of analysts it shows the cumulative deficit in the market since 2005 has been larger than the decline in reported stocks.

In other words, the numbers suggest hidden or unreported stocks have fallen rather than risen in recent years, making it extremely unlikely 800,000 tonnes of metal has been squirreled away.

Taking this into consideration the view from Barclays is the latest theory is not one to be believed, as the more likely reason behind the tightening in the copper market’s fundamentals is simply stronger Chinese demand, which means more pipeline inventory is required.

Click to view our Glossary of Financial Terms