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What the Heck is Going On in the Copper Market?

Wire and cable has always been big business for full-line electrical distributors. It accounts for approximately 16% of all electrical products sold through full-line electrical distributors, and occupies a good-sized chunk of the average distributor’s warehouse, with reels of wire and cable stacked high and all the necessary related equipment for cutting and paralleling wire and cable for custom quantities and configurations.  And then there is the almost mythical impact of the price of a pound of copper, which many distributors, reps and manufacturers who deal with wire and cable track on a daily – if not hourly—basis.

When copper pricing goes a little haywire, people notice. One of the people who notices any unusual changes in prices of the red metal before many in the industry is John Gross, who has spent his career tracking the movement of metals pricing and now publishes The Copper Journal. Electrical Wholesaling’s editor always enjoy his insightful and usually amusing commentary on the copper market and though you also might enjoy what he thinks about the recent shift in metals inventory from China to Mexico to avoid U.S. tariffs and the impact of the dramatic increase in speculative trading of commodities futures by a new generation of high-frequency traders in China and around the world.

A recent Wall Street Journal article says commodities trading volume on China’s Shanghai and Dalian exchanges more than doubled during the first four months of 2016 and that many times these traders are working with copper futures contracts of less than four hours. Here’s what Gross had to say in his weekly email to subscribers of The Copper Journal:

“Five months ago, on April 8, copper inventories held in Comex and LME warehouses stood at 210,934 metric tonnes, and the Spot Price on Comex closed at $2.0865 that Friday. Since then, much more metal has gone into exchange inventories, bringing the new total to 412,437 metric tonnes as of Friday, Sept. 9t with the price closing at $2.0885 that same day.

“Isn’t that something? Inventories rose 201,503 metric tonnes, and the price rose just 20 points. Of course there was considerable back and forth price motion in between, but, even the smartest guys in the room would have to agree that something is amiss.

“Before any conspiracy theories begin to make the rounds, we would be remiss not to mention that inventories of copper held in Shanghai Exchange warehouses declined 217,209 metric tonnes between April and last week, falling to a recent low of 143,716 metric tonnes. In putting these two sides of the equation together, one would have to assume, on the surface at least, that metal moved directly, or indirectly between Shanghai and LME warehouses. To the outsider looking in, this doesn’t look good for the market, and particularly in that the price thus far, has ignored it all.

“Perhaps this is just a taste of what is coming down the road, in terms of market moves and events that don’t seem to pass muster. Undoubtedly you read The Wall Street Journal article last week about the flow of aluminum from China (directly or indirectly) to Mexico where it was believed that some 1 million metric tonnes of metal was accumulated in inventory at a remote manufacturing operation.

"The assumption is that the metal would be fabricated there, and then shipped to the United States, thereby avoiding substantial tariffs. Interestingly, the WSJ also ran an article last week about the volatile pricing of steel resulting from speculative trading in China, and the damaging impact it had upon the ship breaking industry in India.  Again, Not Good.

“And if that is not bothersome enough, the WSJ ran an article in August entitled “Chinese Roil Commodities Markets.” The gist of that story focused on the rapid rise of speculative trading in China, where markets are still largely closed to foreign investors, but still have a significant impact upon important markets elsewhere in the world. The article implied that Chinese traders helped to push the price of silver over $21 last month, and also amassed short positions in copper, helping to drive the price down to $1.94 back in January.

“While some may debate the specifics of these stories, the message is nevertheless unmistakably clear. The rules of the game have changed, and companies that wish to remain competitive in this new environment must have a hedging program in place, or at minimum, a plan ready to go, as and when the need arises. Once the horse is out of the barn, well, you know the rest.”

If you would like to learn more about how to manage your wire and cable inventory in this volatile market environment, contact John at by clicking here or calling him at 631-824-6486.



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