Copper glut in China signals risk of growing oversupply

COPPER stockpiles in Shanghai Futures Exchange warehouses have grown to their highest level since 2020 following a price hike and tepid demand, said the Financial Times.

Citing Bloomberg data, the newspaper said on June 18 that stockpiles totalled 330,000 tons this month. The last time stockpiles of the metal hit this level was in 2015, it said.

Zhang Jiefu, senior analyst at Zhengxin Futures, said the excess metal “simply cannot be consumed”, adding that wire and cable manufacturers are under “tremendous pressure” because of the downturn in China’s real estate sector.

The build-up of copper inventories highlights the fragile state of the country’s industrial sector, which reined in demand when the red metal surged to a record high above $11,000 per tonne last month on a speculative trading frenzy led by the US, the newspaper said.

“If you’re a copper manufacturer in China, then you have every incentive to run down your own stockpiles and hold off buying from the market because demand is OK but not stellar and global prices have surged,” said David Wilson, commodities strategist at BNP Paribas.

In the four weeks since the record high, copper has fallen 13 per cent to $9,600 per tonne, weighed down by weak Chinese demand, the Financial Times said.

The build-up in copper stockpiles nevertheless points to the upheaval that the sector faces due to a global oversupply of smelters. Indonesia, India and the Democratic Republic of Congo are all set to follow China in adding significant smelting capacity soon.

“This is the biggest volume of new smelter capacity in a 12 to 24 month period we’ve ever had,” Wilson told the newspaper.