You never can tell with Goldman Sachs, can you?
On the one hand they revise their copper market outlook and advise to take profits; on the other hand they claim not to believe in the surplus inventory story.
On the one hand they say collateral financing was never an issue; on the other hand they say there has now been a major crackdown on the practice (which never really existed).
In any case, here’s the relevant paragraph from their latest Metals Weekly research:
It is important to emphasize that we are not specifically worried that expected Chinese enddemand growth is not being realized, or that we had significantly overestimated the deficit.
Although higher energy prices and global demand-shock risks have cast new uncertainty about economic growth going forward, backward-looking economic data have been robust, in line with our views of strong global growth.
Nor do we believe that previous Chinese demand strength owes largely to non-industrialrelated inventory-financing demand, as recent market worries have focused on.
We believe that the demand for copper imports from the practice of overleveraging inventory to increase credit lines has well passed its peak, and that a crackdown on this practice has now overly tightened inventory leverage if anything, therefore tightening cathode demand relative to end-use at the margin. We believe that the narrowing of SHFE timespreads in recent weeks, despite the high prices, is an important indicator that demand conditions are picking up in China as destocking can no longer create apparent surplus.
Takeaway: These are not the copper reserves you are looking for…
Lessons from the People’s Repository of China – FT Alphaville
China’s copper stockpiles weigh on industry – FT
China’s bonded-warehouse copper mystery – FT Alphaville
China’s copper as collateral addiction – FT Alphaville