(Bloomberg) -- Copper has been piling up at a record rate on global exchanges so far this year as surplus metal has flowed into warehouses across Asia, Europe and the U.S. during a period of seasonally weak demand.
London Metal Exchange warehouse inventories hit a four-year high on Tuesday, breaking out of a zigzagging range seen since mid-2016. Analysts and traders have cautioned that, taken in isolation, that sawtooth pattern can give a misleading snapshot. Still, rising inventories seen on Comex and the Shanghai Futures Exchange signal that copper demand is going through a rough patch.
Copper inventories stored in Shanghai Futures Exchange warehouses have jumped more than 90 percent this year and are at the highest level in 11 months, while Comex copper stockpiles are up 10 percent. Taken together, the year-to-date surge in global exchange inventories is the strongest in terms of tonnage in data going back to 2003.
“It’s not unusual to see stocks rising at this time of year, but the scale of the increase has been very significant,” Oliver Nugent, a commodities strategist at ING Bank NV, said by phone. China’s week-long Lunar New Year holiday last month has contributed to slack demand, but copper may start to flow out of storage in the second quarter as factories ramp back up, he said.
Price spreads on the LME also point to sagging demand. Cash contracts traded at a $46 discount to three-month futures on Monday, the widest spread since January, signaling that there’s ample spot metal available.
More copper may still be on its way, but through April the surge in stocks could start to reverse as demand picks up, Nugent said. That’s particularly the case for metal stored in Asia, which can be shipped to China quickly as orders rebound. Copper stored in Comex warehouses in the U.S. and LME depots in Europe may stick around longer, Nugent said.
More than half the stock stored on Comex is located in Salt Lake City, Utah, and the cost of transporting it to major consumers elsewhere in the country is prohibitive, he said. In Europe, strong supply of copper scrap has also sapped demand for the refined cathode that’s been piling up in LME warehouses there.
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