Copper on the London Metal Exchange (LME) has closed higher, although earlier gains stalled in the European afternoon in a quiet trading session as the US dollar’s strength resumed.
Meanwhile, the potential ability of warehouse exit queues to affect prices came back into focus with global stockpile shifts showing volatility this month.
By the close of open-outcry trading on Friday, copper was 0.3 per cent higher on the previous day’s settlement at $US7,300 a metric ton, having drifted a touch from its intraday high as the US dollar resumed a stronger pattern against the euro.
The US dollar strengthened, denting the appeal of dollar-denominated LME metals to buyers holding euros, after some upbeat US data including consumer-confidence figures, Sucden financial analysts said.
Overall, most base metals climbed in the session as upward momentum continued from Thursday and some demand-side data points — including European auto sales, which increased for the first time in 20 months — were a positive surprise to the market.
Only nickel and aluminum closed slightly lower.
The fact that one of the world’s largest copper mines, PT Freeport Indonesia’s Grasberg operation, remained shut following a fatal accident also highlighted supply risks to the copper market and was also a price-support, although analysts said this interruption was having a limited effect on prices so far.
One issue with an increasing potential to affect copper prices is the recently volatile shifts in warehouse stock levels, largely a result of financing activities, market watchers commented.
LME Copper warehouse stocks have shown a significant amount of volatility in recent weeks, with large swings in inventory levels evident in stockpile data.
“The sheer scale and size of the recent inventory changes in places like Johor, Malaysia suggests that it is unlikely to be related to sudden changes in spot demand conditions,” Standard Bank analyst Leon Westgate said in a note on Friday.
“Instead, it seems more likely to be the reshuffling of material, related to the financing-type activity seen in other markets like aluminium and zinc as copper also heads down that route,” he said, noting incentives paid for storage are also affecting stock levels.
According to the bank, long exit queues for the load-out of metal at major copper-storage locations created as copper is moved around on account of incentives and metal-backed financing deals mean market participants are looking at multi-month waits to get hold of copper.
In some cases, according to Standard Bank, they are having to plan up to six months forward if they are to have copper ready and available at the front of exit queues for usage.
With copper market supply-and-demand set to perhaps tighten later in the year more than some market watchers expect, Westgate said these efficiency issues facing the LME warehousing system look set to keep at least premiums paid on top of prices for immediate metal delivery elevated. They also have the potential to affect prices, he said.
“Whether outright prices also react to these factors is debatable, though it remains a risk in our view,” he added.
