There has been a slowdown in the drawdown in July. In June the daily combined LME and Comex drawdown was running at about 3600 tonnes a day (77,000 a month). For the thirteen days in July it's been 1231 (25,000 a month pace if it continued, a difference of about 50,000 tonnes a month). Overall above ground inventory in the markets(Comex and LME)is hardly "high", and in fact is right now at what can only be called a critical level of 170,196.
So the question is: what is causing the pause, or is it a new trend? I just don't think the majority of this is new supply, although additional Cu from Grasberg's pit fix may be suddenly coming on stream. That might account for 500 tonnes a day or so? Possibly some more has come to market as producers might have held product off on a price sensitive basis when it was depressed below 1.20, and are willing to sell at say $1.30? If so, I think that's a relatively minor consideration in the big picture.
The other theory would be an economic collapse underway in China (and elsewhere). I use the word collapse, not slowdown because a sudden shift of 30,000-40,000 tonnes a month in demand, would be around 3% of total global copper consumption, a major shift. I don't think that much of a drop could be happening (could be some, but not that degree), but it should be watched. The same could be said of the US economic activity. I'm real curious about today EEI (electric) report, as there has been a sudden drop over the last three weeks, that can't all be explained by cool weather.
The final theory I have about the Chinese, is that they play games with the market, like a poker player bluffing with a weak hand. Do they run their own Beijing school of the Ministry of Propaganda? I think so.
Finally, it could be a combination of all three. The litmus test will be to constantly track the drawdown, because if it suddenly accelerates back to the higher pace (for instance, yesterday's drawdown was back up to 2,797), a scramble will be on for the last small amount of inventory left. |
