Chinese imports – the single most important factor in the copper bull market – have been in decline. Imports reached a monthly record in December of last year, but have been trending down since (Chart 2).
To put this in perspective, although month-over-month numbers are falling, imports are still above year-ago levels. While the drop-off in imports seems to be consistent with the slowdown in the growth rate of the Chinese economy, imports are still substantial. June imports of refined copper were 250,000 tonnes, 40% higher than in June 2011. Each month’s data will have to be scrutinized.
Global warehouse stocks peaked in mid-2010 and have been falling since. Inventories began to rise a bit in June (Chart 3), however, which might prove to be consistent with weaker Chinese imports and increased supply coming out of Chile.
In conclusion, if the two principal fundamental factors that guide this market – Chilean production and Chinese imports – continue to develop in the direction they’ve been moving over the past several months, even a strong US stock market will not be able to keep copper prices above $3 per pound. The Chinese market has proven to be resilient, however, and Chilean output growth has many challenges to deal with. If you were fortunate enough not to abide by our stop and are still short, remain short, but lower stops to $3.56 per pound, basis September, close only. Otherwise remain sidelined, but stay tuned.