One of the best things about commodity trading is understanding the forces behind supply and demand. Commodities don't have earnings reports, CEO scandals or accounting scandals, or upgrades and downgrades, just supply and demand. How much is there and how much do folks need it or in the case of gold, want it. There are times, however that supply and demand get complicated by outside factors. In the case of copper, that outside factor is logistics.
Demand for copper has been healthy and copper production has been uninterrupted, but sometimes the supply chain has issues. Stockpiles of copper have been growing in warehouses since January of this year. Copper stocks held in warehouses registered with COMEX in the United States stand at 228,428 tonnes, up from below 90,000 tonnes at the start of 2017. According to Reuters, "warehouses in Salt Lake City, Utah have climbed to 131,774 tonnes from around 30,000 tonnes in January last year, while those in Tucson, Arizona are up at 74,427 tonnes from below 50,000."
Why the climb in inventories? In industrial transactions, physical copper is typically quoted at a premium to the futures price at COMEX of the LME and that premium includes freight. That freight, when pulling inventory from a landlocked warehouse like Utah or Arizona, consists of the cost of taking copper from the warehouse, loading it into a container, then onto a truck, driving it to a port, unloading the container there and loading onto a ship for transport to the industrial buyer. Currently, the cost of that logistical process has been rising, to about double the level of 2016. The premiums above the futures price in the US have gone up, but not enough to cover the rising transport costs. So while there is plenty of copper supply, the logistical costs have caused a shortage of supply to the end users. Hence futures prices have gone up and will continue to have an upward bias until all the factors affecting supply have come into balance.
With the FOMC and the ECB minutes both stating central bank confidence in the global economy and China coming back from the quiet of their lunar new year, copper looks ready to make a run at the December 2017 highs.