The note also said that stockpiles of copper were expected to build up to about 2.5 times the average seasonal first-quarter volume seen over the past five years, because of sustained production and a lack of downstream demand.

“In metals, Chinese efforts to contain the [spread of 2019n-CoV coronavirus] had constrained demand for metals from manufacturing plants, while Chinese smelters and refineries have for the most part [continued] producing, with the consequent inventory build-up evident in deliveries into [the Shanghai Futures Exchange] and bonded warehouses,” JP Morgan said in the note.

There were 310,760 tonnes of deliverable copper in SHFE sheds on February 28, up from 141,317 tonnes at the beginning of the year. Base metals volumes on the exchange totaled 989,159 tonnes, more than double the 448,333 tonnes of January 3.

For copper, the note said that it would take around three quarters of the year to completely run down the accumulation, assuming a normalized demand profile for the rest of the year.

The inflows pushed the March copper contract in Shanghai to 45,030 yuan ($6,450) per tonne on Monday March 2, an 8% decrease from the start of the year. JP Morgan said that although it was neutral on commodity markets in general, there could be further downside for copper prices.

“In times of heightened volatility,” it said, “the demarcation line between neutral and defensive is thin, and indeed our short-term price momentum indicators suggest downside price risk of a further 5% from current spot levels for Brent and 17.5% for copper before the negative trend is exhausted.”

Although there has been a decline in the nearby copper price, the forward curve for copper on the SHFE remains in contango, with the April contract trading at 45,230 yuan per tonne, 200 yuan higher than the current month. As a result, some market participants could make money carry just by holding on to metal.

“Following the largest inflow of metal since 2003, SHFE copper futures have been trading in a deep contango since the return from the lunar new year [holiday break], with the carry profitable enough to roll fully hedged positions out to July,” JP Morgan said.

The contango was also supportive of regional copper premiums. Fastmarkets assessed the copper grade A cathode premium, cif Shanghai, at $42-62 per tonne on March 2, up slightly from $40-60 per tonne seven days earlier.

There could be a turnaround for commodity prices in the coming months, JP Morgan said.

“Looking into the spring, however, events could take a decisively more positive turn,” it added. “For one, there is a case to be made about the seasonality of viral respiratory infections (including influenza), with a decline in reported cases typically reported in spring and summer. For another, our expectations for a bottoming in global economic activity somewhere in early spring call for a strong post-virus bounce in [the second quarter].

“[This] in turn should drive a recovery in cyclical assets,” it said. “In the case of commodities, while the release of pent-up demand will probably provide a substantial boost for prices, the appreciation in cyclical commodity prices will probably lag behind typical reflationary levels.”