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Last week’s copper import data release for September from China caught many observers by surprise.  At 399,000 metric tons, arriving shipments increased from August by 23%. With more questions than answers raised by these figures, Shanghai contracts saw selling pressure on heavier than average volume and declining open interest on Friday before last night’s snap back as traders are beginning to suspect that copper is being stockpiled in China.  In fact, China has imported 1.9MM tons year-to-date, which us up 77% from a year ago.

The two critical factors for traders this week will be the NBS release of production data for September and the weekly stock level report by the Shanghai Exchange on Friday. If production failed to keep pace with imports last month then rising stock levels should weigh on the futures market, potentially offset if Friday’s stocks track inventory reports to date –which have not indicated a dramatic increase, indicating that late summer levels were lower than originally thought.

From a macro perspective, either outcome –rising stock levels or heated production, support continued concerns about forming asset bubbles on a shorter duration (either commodity or construction), while also supporting continued strong growth trajectory on a longer duration (barring a dramatic shortfall in production figures, something we do not factor as likely). 

The concerns articulated by traders in Shanghai futures market last week have also been supported by inventories building on the Comex and LME.  In aggregate, the combined total on both exchanges is now over 400,000 metric tons, which is significantly above the low set in July of 312,357.  Last week oil was up 9 – 10%, while copper was essentially flat which has us wondering whether these supply data points are starting to offset the perception of improved economic demand in 2010 and U.S. dollar weakness as the key drivers of copper’s price.

Daryl G. Jones

Managing Director

Andrew Barber