Questions Over Chinese Stockpiles Roil Copper Market

Questions over exactly how much copper is stored in the Chinese port city Qingdao by companies owned by Dezheng Resources has injected a new level of turbulence into pricing in the copper market.

As if manufacturers and distributors of wire and cable didn’t have enough trouble figuring out which way copper prices will move next. Now copperheads have to worry about some allegedly shady warehousing practices in one Chinese port city, where some industry insiders say at least one trading company is double-booking the copper it’s storing as collateral for multiple financial deals. China is the world’s largest consumer of copper.

According to reports in the Financial Times, Wall Street Journal, on Bloomberg.com and other business publications, questions over exactly how much copper is stored in the Chinese port city Qingdao by companies owned by Dezheng Resources has injected a new level of turbulence into pricing in the copper market.

There doesn’t appear to be any concern over the copper stockpiles in and around Shanghai, which reportedly account for much more copper than is in Qingdao. A Financial Times reports said that by the end of May, it’s estimated that Qingdao was warehousing approximately 100,000 tonnes of copper, while bonded warehouse districts in Shanghai hold around 800,000 tonnes of copper.

The Financial Times article also said an ongoing investigation appears be focused on companies owned by Dezheng Resources, which operates aluminum smelters, power plants and coal mines. The article said Dezheng reportedly owns “up to 20,000 tonnes of copper and 100,000 tonnes of alumina at Dagang, an older docking area within Qingdao Port.”

The Financial Times also reported that, “Local authorities began investigating whether a Chinese company (allegedly owned by Dezheng Resources) had pledged the same lots of material to several banks — the equivalent of a homeowner taking out multiple mortgages on a house while telling each lender they were the only one. With potential losses running into hundreds of millions of dollars, banks and traders scrambled to assess their positions.”

Despite all the hub-bub over these double-booking charges, spot copper prices over the past 30 days have been trading in a relatively narrow range (by today’s wildly cyclical standards) from just over $3 per pound to approximately $3.17 per pound at press time. A report in Copper Investing News provided some insight into copper prices in the future. Said the article, “The copper market may be looking at a surplus this year and next, but with a lack of new supply coming online, the market is headed to deficit territory.”

Some copper market specialists quoted in the article expect copper prices to remain in a relatively narrow range around $3.00 to $3.25 per pound over the next year or two.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish