China’s Low Inventory of Copper Contradicts Global Reality

Copper prices have fallen for the past several months amid a global energy crisis, worsening cost of living crisis and increasing geopolitical tension. Because copper’s performance is traditionally associated with broader economic metrics, reducing copper prices have increased fears of a global economic slowdown.

Prices for the red metal have trended downward partly due to reduced demand, particularly from major copper importer China, and disappointing import and export data from the Asian nation. A sharp drop in global demand caused by worsening economic conditions in Europe and slowed economic recovery in manufacturing giant China also caused prices to drop significantly as supply outpaced demand for the red metal.

While most of the world removed coronavirus-related lockdowns in 2022, China doubled down on its strict anti-COVID policies and shut down large swathes of the country to maintain zero infection rates. As China plays a key role in the global economy, particularly in regards to manufacturing, shutdown orders caused copper suppliers to lose demand for several months as factories across China either slowed down or halted their operations.

However, even though low copper demand from China is pulling global prices down, the eastern Asian nation seems to be dealing with low copper inventories. Copper inventories data from China shows that the nation had a total of 110,314 metric tons of copper at the Shanghai Futures Exchange and bonded warehouses in China on August 11, 2023, a 53% year-on-year reduction.

These low inventories have helped to fuel a surge in net long copper positions on the London Metals Exchange (LME), especially as future prices in Shanghai and London have fallen in recent weeks. These investors anticipate that copper prices will increase over the next few months as China increases its demand for copper amid economic stimulus measures.

An Aug. 11, 2023,  Goldman Sachs report noted that with limited copper inventory in China and metal exchanges in the West, a “material supply disruption” or the rollout of aggressive economic stimulus policy in China increased right-tail risk for copper prices. However, some analysts say current copper inventories are sufficient, and with economic pressures dampening copper demand, there won’t be enough demand in the near future to strain the supply and increase prices.

Analysts also note that the indicator for increasing copper prices may be misleading now that copper can now trade between counterparties without using futures exchanges as intermediaries. Hubei Shidai Refined Copper Technology Zhang Kaimin purchasing manager says that the company no longer uses copper stock data to analyze supply and demand in the copper market. He explains that there is plenty of spot copper supply and companies can secure quality material in exchange for a “good price.”

The existing stockpiles of copper at this time are unlikely to deter exploration companies such as Arizona Metals Corp. (TSX: AMC) (OTCQX: AZMCF) since future demand is likely to be high as greener forms of energy, including solar and wind energy, grow in prominence around the world.

NOTE TO INVESTORS: The latest news and updates relating to Arizona Metals Corp. (TSX: AMC) (OTCQX: AZMCF) are available in the company’s newsroom at https://ibn.fm/AZMCF

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