So let’s assume the following to try and make sense of this mess:
Up to late 2008 China (the word “China” used as shorthand for the major world dynamic growth for copper consumption) bought every tonne of copper it could, blissfully unaware in the same way as most of the world of the approaching storm.
Stocks went up rapidly in late 2008 because China simply stopped buying.
The price dropped off a cliff because of oversupply. Econ101.
Then China thought “Hmmm, copper be cheap!” and bought up all it could at new low prices. Stocks dropped from LME but rose in strategic stockpiles inside China. This takes us to mid-2009.
Then LME stocks started rising, as companies jacked up supply and happily found the metal going ever higher. Speculators had moved in, enough of the business world looked at ZIRP, QE and other stimuli policies as being monetary inflation-stoking. Therefore commodities were now in fashion as a store of wealth. This is quite true for gold, but a dangerous assumption for industrial commods like copper.
Cut to present day. Inflation fashionistas are out, deflation callers have an upper hand and although warehouse stocks are dropping, something that indicates higher end-user demand, the price has cut away by 10% to 15% from recent highs, too. That’s the bearish case. The bullish case from staring too long at these charts is that even in the face of $3+/lb copper (a price that’s supremely profitable for all copper producers worth their salt), the market is an interested buyer and keen on locking up the goods (see recent comments out of Grupo Mexico, Codelco etc for ample evidence of strong end-user purchasing demand).
Now for sure there’s a lot of nuance left out of this little list, but it does try, at least, to provide a simple little roadmap and give an idea of the push-pull fight going on right now. So who’s the Daddy here? Will monetary influences pull harder than demand influences and get us lower spot copper prices? Or will end-user demand win out. FWIW, history has shown us ample evidence that industrial metals eventually ignore any currency and forex shenanigans and will follow the demand for their products….eventually. DYODD, dude.