On Tuesday January 23, more than 36,000 tonnes of the red metal hit LME sheds, mainly Busan warehouses; subsequent deliveries moved copper into Singapore, Rotterdam and New Orleans warehouses.
As of Friday January 26, on-warrant stocks had increased by 62% since Monday January 22, to stand at 258,675 tonnes - the highest since October 2016.
“We are already used to these occasional, huge deliveries into LME sheds. Last year, there were at least four spikes that we had [of] over 50,000 tonnes of delivery within a few days. [The] price was still rising,” Robin Bhar, head of base metals at Société Générale, told Metal Bulletin.
The LME's three-month copper price saw a 2% day-on-day decline on Tuesday with a series of put options bought at bearish strike prices. However, it soon recovered, closing at $7,148 per tonne on Thursday January 25.
“Such shorts were squeezed out on Wednesday [January 24] as we noticed a decent pick up in SHFE [Shanghai Futures Exchange] positions - and of course the momentum of the falling dollar,” ING commodities strategist Oliver Nugent said.
Put options declared on Monday - to sell 3,700 lots of copper at $6,800 per tonne for prompt delivery in February - were already gone by Friday, the latest exchange data showed.
“The dollar has been more important to copper prices this week, it could have been a whole [lot] different, but for now the ridiculous increase in stock is not phasing the industry,” a trader source said.
The three market participants who spoke with Metal Bulletin all agreed that the stock flows this week did not point to changes in the supply-demand balance.
“The market always knows about the off-warrant metal. Does the delivery lead to a clash in warrant premiums? Does it reflect change in fundamentals? The answer is no,” Bhar explained.
Bhar described the huge delivery as “noise.”
But Nugent saw it as a result of warehouse incentives to attract deliveries.
“In the absence of any backwardation at the front of the curve, a trader's decision to make [a] delivery on the LME will rely on any incentives being paid by the warehouse owner. This can vary from upfront funds to rental shares for as long as the metal sits in storage,” he said.
More sharp inflows are expected in due course, Nugent added.
“The market was clearly expecting the stock increases as they have had little effect on price. The repetition has not helped, either – each day we were waiting to see just how much, but we knew it was coming,” the trader source noted.
Copper prices remained resilient last week despite deliveries into London Metal Exchange sheds that totaled more than 100,000 tonnes - and do not necessarily reflect changes in supply-demand fundamentals, market participants said.