The Copper Journal: Is This a Wake Up Call?

July 22, 2019
For week ending July 19. Inventory declines in some metals has not affected prices.

Last week, silver rose almost $1.00 per ounce; gold was up $15.20, and platinum climbed $17.50.

Copper gained 5.3¢; lead +4.5¢, while nickel soared 55¢.

It wasn’t as if there was any sudden, or significant change in the fundamentals for these markets, and the dollar didn’t change much either.

But something is happening, and whatever it is, it has not completely revealed itself yet.

Trade issues remain up in the air; we are told the global economy is moderating, and geopolitical problems and tensions have not gone away.

On some level, though, we can’t help but think the enormous drawdown of metal inventories over the past several years is somehow, in some way, beginning to be felt in the global marketplace.

Take a look at the first chart in this week’s report as we revisit total stocks of nonferrous metals, as compared to the Base Metals Barometer, which is a composite reading of metal prices.

During June 2013, total inventories stood at 7,825,465 metric tonnes. Since then, the figure has fallen more than 6 million mt to 1,754,318 mt as of last week, representing a near 80 percent drawdown.

Interestingly, aluminum stocks were 5.48 million mt in January 2014, and the price at that time was about 80¢ per pound.

As of Friday, aluminum inventories stood at 974,000 mt, and the price closed at 83¢.

So, broadly speaking, aluminum inventories fell some 4.51 million mt, or 82%, and the price did pretty much nothing.

Have the ancient laws of economics been rewritten? Has logic fallen asleep? Or, are we so busy stepping on ants, that we don’t see the elephants coming?

And as you can see from a brief review of the individual price and inventory charts, they are all singing from the same hymn book – inventories have been declining (with the exception of tin recently), and although we have seen a lot of back and forth motion in prices over the past 3 ½ years, they are all nevertheless well above where we were in January 2016, to include tin.

Perhaps the question before us is: ‘If inventories continue falling, what should we expect from prices’ ?


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