Recently, the Shanghai warehouse in China has experienced the most severe copper supply surplus in four years, indicating that the manufacturing sector in China is still struggling. The copper inventory in the Shanghai Futures Exchange warehouses has reached its highest level since 2020, totaling about 330,000 metric tons, according to Bloomberg data. It was the first time since 2015 that the inventory has reached such a level.
The surplus copper “simply cannot be consumed,” said Zhang Jiefu, a senior analyst at Zhengxin Futures, adding that wire and cable manufacturers in China are facing “enormous pressure” due to the downturn in the real estate industry. Copper is widely used in various household appliances, wiring, and pipelines after construction. Therefore, copper inventory is often seen by analysts as a key indicator of market strength. When demand outstrips supply, these inventories continue to increase, and when demand is strong, inventories are depleted.
The increase in copper stocks in China reflects the sluggish real estate market, as well as the weakness in manufacturing and lending activities. Last month, international copper prices surged to a new high of over $11,100 per metric ton due to speculative funds. However, affected by weak demand in China, copper prices fell by 13% to $9,600 per metric ton within four weeks.
Analysts say that the high copper prices and weak demand have caused many Chinese copper processors to delay purchases, further exacerbating the surge in inventories. Chinese copper stocks usually increase at the beginning of each year and decrease after the Chinese New Year holiday as factories ramp up production. However, this year, the increase in inventories lasted longer than usual, only seeing a slight decline two weeks ago.
The softness in the Chinese market has led to copper being traded in Shanghai at a discount to the global benchmark price, a situation that is rare. Traders note that unlike China, global copper inventories remain at extremely low levels, only supporting a few days of consumption. This indicates that copper prices may experience significant volatility in the future.
Analysts believe that Indonesia, India, and the Democratic Republic of the Congo are following China’s lead and are preparing to significantly increase smelting capacity in the short term. This could lead to an oversupply of smelters globally, causing significant upheaval in the copper industry. Wilson commented, “This is the most significant increase in smelting plant capacity we have ever seen in the next 12 to 24 months.”