The acutely tight supply dominating world copper markets may be over from mid-year as two years of high prices prompt producers to raise output, analysts said. "The physical market has turned and there is more material available. Stocks remain on the low side, but people are less concerned about where their next copper units will come from," Sempra Metals economist John Kemp said.
"There is clearly a certain amount of metal around in merchant hands," Tony Warwick-Ching of UK consultancy CRU, said.
"The market is currently dipping in and out of deficit, but we have a surplus in place for the end of the year," he said.
Stocks in London Metal Exchange, New York and Shanghai Futures Exchange warehouses total 106,698 tonnes, their lowest in 6-1/2 years.
That is around two days of world copper consumption and compares with 800,000 tonnes at the start of 2004 and a peak of 1.52 million tonnes in May 2002.
Low stocks of the metal, which is used in electrical and electronic applications as well as construction, meant the market remained highly vulnerable to short-term price spikes.
"With these low inventory levels, any positive surprises to demand or any supply disruption can have explosive price implications...with current market conditions extremely constructive for further gains," Barclays Capital analyst Ingrid Sternby said in a recent report.
LME stocks have climbed 2,150 tonnes in the past week after deliveries were attracted by a $187 premium on the cash price over the three month price.
Kemp said the cash to three months so-called backwardation, which is restricted by LME regulations, provided only a limited incentive to deliver copper to warehouses because it meant forgoing comparatively firm premiums.
Physical copper premiums in Europe were around $100 a tonne for grade A cathode above LME cash prices. In China they were $110/120 above the price for one month ahead.
On Monday LME three-months copper futures were at $3,075/80 a tonne at 1340 GMT, against a near-16-year peak of $3,175 last October and a cyclical low of $1,336 in November 2001.
LAGGING INDICATOR: Kemp said exchange stocks did not give a complete picture of the market equilibrium.
"There is no point using exchange stocks data as an indicator of market balance as it is a lagging indicator."
"When the market tightens the exchange stocks are the last thing to drop, and when the market eases they are the last to go up," Kemp said.
He expected to see sharp rises in exchange stocks this year as producers responded to strong prices.
Merchants said metal had already become more freely available in the wider European physical market.
"The whole market in Europe has changed. Copper supplies compared with last year are very plentiful, both from merchants and from producers. From where I sit, the squeeze is over", one trader said.
Chinese traders said more metal was moving into bonded warehouses in Shanghai, with stocks up a third in the past month to about 80,000 tonnes.