Copper on a Knife Edge

With copper metal inventories hovering near the equivalent of three weeks' consumption, only very minor changes to supply or demand could result in inventory outcomes which have been associated with strong cyclical conditions historically. The chart shows the end of year copper metal inventory data published by the International Copper Study Group. Inventories at the end of December 2014 were near the peak level for the cycle. Critically, however, historically strong growth in consumption has meant global stock holdings now represent one of the lowest proportions of overall usage experienced over the past 40 years. The critical ingredient in the cyclical outlook remains the likelihood of a near term acceleration in economic activity which would bring with it a likely surge in metal use. Without that, the risk rises of little or no change in consumption in 2015 while metal supplies continue to rise. The latter scenario would reverse the inventory tightening which has been evident over the past two years. Near might still prove to be not close enough.