There’s a bitter divide amongst the copper market commentariat at the moment.
In one camp are the “inventory realists”, mostly independent analysts, who claim prices are too high based on where global inventories stand. Demand, they say, is skewed because of financially motivated collateral schemes in China.
On the other side are “Chinese demand enthusiasts”, mostly bank analysts, who say growing inventories are only a symptom of rampant Chinese industrial growth (companies need more standby metal to satisfy growing orders), and that a copper deficit undoubtedly continues to plague the market.
Joining the former on Tuesday, though, is RBC Capital Markets. In their latest Copper Market Outlook, the bank’s analysts presented the following chart:
It’s quite compelling because it shows the degree by which copper prices have risen beyond the historical inventory price relationship. In RBC’s opinion, this leaves prices vulnerable to a correction should investment fund flows “which have been the major determinant of price over the past 12 months”, reverse.
In related news, meanwhile, Metal Bulletin reported on Tuesday that Chinese copper imports in May plunged to a 30-month low as demand for the metal to back financing deals fell away.
Related links:
Oxymoronic LME stocks – FT Alphaville
Let’s count the copper with dust on it - FT Alphaville
China’s bonded-warehouse copper mystery – FT Alphaville