Supply Chain Compression in the Copper Market
January 6th, 2012
Based on numbers for refined copper demand and output through January 2011, analysts at Barcalys Capital concluded that the copper market recently experienced a widespread supply chain compression. There was a refined copper deficit of 20,000 mt in January, despite the fact that total reported copper stocks jumped nearly 70,000 mt that month.
And demand for refined copper shot up by 11% the same year through January, while refined copper production only increased 3% over the same period. This supports the view that the key factor behind softer market indicators in Q1 such as rising LME stocks was not weaker demand but a large scale compression of the supply chain. Given that such a compression is finite and end-demand remains strong, then bullish fundamentals will likely be reasserted in the metal when the destocking effect winds down at the end of Q1.
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