Copper is waving a red flag.
“Recent movements in copper inventories highlight the lack of significant demand for the metal, particularly in the ever-important Chinese market,” wrote BMI Research in a recent note.
The country’s demand matters because copper is used to make items as varied as electrical cables and coins, and China is the world’s largest importer.
“While the corresponding decline in Shanghai inventories largely offset the jump in LME, the shift suggests that China’s strong H116 economic data does not in fact reflect improving demand growth,” BMI Research wrote.
“We expect China’s refined copper imports to decelerate over the remainder of the year, and will remain wary of any other rapid movements in inventories.”
BMI noted that in June, London Metals Exchange (LME) copper inventories jumped by 70 thousand tonnes in a few days. That pushed futures prices out to three months above the cash price for copper — a situation referred to as contango, which reflects an expectation that futures prices would gradually fall to match the expected spot price.
On Monday, benchmark copper on the London Mercantile Exchange traded near a four-week low amid concerns about faltering Chinese demand.
But the level of inventories is not the only factor that influences prices, and data on them does not come easily.
“As such, despite the negative picture painted by copper inventories and growing spread, we maintain our USD4,900/tonne forecast for 2016 and will monitor inventory trend for further signs that the market is looser than we expected,” BMI Research said.
Copper traded near $4,829 a tonne on Monday, up 0.8%.