China’s bonded-warehouse copper mystery | FT Alphaville

China’s bonded-warehouse copper mystery

Copper prices in London soared to record highs on Tuesday as data from China showed the country’s imports had picked up for the first time in three months — just as fears over supply disruptions in the world’s biggest producer, Chile, increased.

As Bloomberg noted, copper for delivery in three months on the London Metal Exchange climbed 1.4 per cent to $9,327 a metric tonne.

Meanwhile, copper for delivery in March climbed as much as 1.3 per cent to $4.2595 a pound:

Despite that interesting surge, the dynamics at play are even more intriguing.

According to analysts cited by Reuters, even though China’s monthly imports of refined copper rose nearly 37 per cent in November, the consumption pick-up to 661,376 tonnes in November versus 549,704 in October was actually driven by supply.

Imports, they said, were still being stored in bonded warehouses, with more refined metal being offered in the Shanghai spot market than ever. The consumption pick-up, therefore, was more of a response to ample and cheap supply in the market.

As Reuters noted, the London/China arbitrage window was after all firmly shut during the period:

The November inflow was a surprise to many market watchers  given that the arbitrage window — buying from the London Metal Exchange and selling to Shanghai — was shut for much of  last month, Beijing Capital Futures analyst Xiao Jing said.

And, as they also noted:

But trade and warehousing sources in China said the London Metal Exchange and Shanghai arbitrage had stayed closed last month and that should have prompted importers to store some arrivals of refined copper in bonded warehouses.

Bonded material can be shipped out to the international  market easily or imported into China after the 17 percent  value added tax is paid.

According to Reuters, some 250,000-300,000 tonnes of refined copper were estimated to be held in bonded warehouses in Shanghai earlier this month.

With so much copper about, it’s no surprise offers abound and that an increase in imports should come as a surprise.

But given that, what is really responsible for the pick-up in imports then?

A clandestine, underground government project using copper reinforcements is all we can (in jest, of course) think of.

Or, more seriously, could it be the by-product of some very strategic market trades of late?

And just to add to the mystery: we have this just in, regarding that very specific dominant position on the London Metal Exchange:


Of course, it’s only when that warrant position is cancelled that there would be an actual draw on the physical stock of copper held by the LME.

It’s all highly intriguing, nevertheless.

Related links:

LME cancelled warrants are rising fast
– FT Alphaville
JP Morgan revealed as mystery trader that bought £1bn-worth of copper on LME
– The Telegraph
Why JP Morgan’s new copper ETF may have a scouse exposure
– FT Alphaville
Is ‘cash for commodity’ the biggest trade in town?
– FT Alphaville