LME copper price hammered lower as stocks increase

New York — The London Metal Exchange copper price was battered lower during intraday trade on evidence of increased global inventory levels Oct. 1, as the world frets over a second wave of coronavirus infections.

The copper price had been caught up in the wave of Chinese buying, stimulated post-pandemic by government fiscal intervention. Adding to the buying spree has been talk linking increased copper consumption to the growing electrification of vehicles. This was met with declining LME stock levels that really stoked investor interest on the buy-side. That came to an abrupt halt Oct. 1 as the market digested increased COVID-19 cases and ballooning inventory.

"All in all, it's been a bit of a perfect storm. The price was battered lower when markets crashed earlier in the year, then all of the government stimulus flowed in and copper raced higher," one trader told S&P Global Platts.

"However, it's a shaky rally at best, open to corrections like we are seeing right now. To be honest though, you'd have to bet on any dips being bought," he added.

The LME three-months copper price was under some considerable downside pressure during intraday trade Oct. 1. The metal was spot bid around $275 lighter at $6,410/mt.

"We're actually quite surprised by the severity of the downside," a second trader said.

Brokerage Marex Spectron noted that, "given that Sept. 30 was quarter end, price action across the base was remarkably muted with copper dominated by the dollar selloff, trading in lockstep, thereby suggesting high frequency traders were one of the major participants in the flow."

The broker added that, "ignoring the potential for [any] rebalancing [of portfolios] we remain positive metals on back of [a] medium term bearish dollar view."

Turning attention to the upcoming US Presidential election, ANZ said that a win for Biden could be bullish for copper.

"From a growth perspective, a win for former vice president Biden would be the best outcome, in our view; and with that we would expect commodities such as copper and crude oil to benefit the most. Should President Trump win, we would expect to see headwinds for industrial commodities, while gold would be well supported. The wildcard would be a disputed result following a lengthy voting process, which we would expect to stimulate demand for safe-haven assets," the Australian bank added.

Global stock levels climb

Looking at global LME copper stocks, they dipped a modest 2,475 mt Oct. 1, but over recent sessions have witnessed hefty increases.

ING said that net inflows on Sept. 30 totaled 29,000 mt, which takes total build over the last three days to almost 92,000 mt.

"The cooldown in buying by Chinese traders may have propelled Western traders with stocks in hand to seek LME sheds as an alternative destination. Meanwhile, as a result of the closed arbitrage, and traders having no incentive to clear them into the onshore market, imported copper continues to pile up in Shanghai bonded warehouses," the Dutch bank said.

Total LME-registered stocks stood at 165,600 mt Oct. 1. They started 2020 at 144,675 mt, hitting a peak of 282,75 mt in May.

TD Securities' head of commodity strategy Bart Melek said that, "following months of steeply drawing inventories resulting from a powerful 'V-shaped' recovery in China, combined with a cascading global re-opening and constrained supply amid social-distancing enforcement at operations, the substantial inflows into LME warehouses have eased the near-term tightness that has propelled copper to multi-year highs."