TD Securities' Senior Commodity Strategist Daniel Ghali reports that unencumbered copper inventories have declined sharply since the start of the year, with only 9.1 days of available supply remaining compared to 11.4 days at the beginning of the year [1]. Despite visible warehouse builds and a prevailing risk-off sentiment among traders, Ghali asserts that copper scarcity is unprecedented and is being driven by a reshuffling from invisible stockpiles into visible warehouses, which inadvertently locks up more metal [1].
Ghali notes that traders are concerned about a potential glut of copper in warehouses, but his proprietary estimates indicate that unencumbered stockpiles are substantially lower year-to-date [1]. This dichotomy between rising visible inventories and declining unencumbered inventories suggests a tightening market, underpinning continued demand from Commodity Trading Advisors (CTAs) [1].
According to Ghali, CTAs currently have a substantial margin of safety in copper before the next selling program is triggered, and are skewed to buy risk assets. He expects CTAs to modestly add long positions in copper in most price scenarios over the coming week [1].
Ghali also states that copper stands to benefit the most from a swift resolution in the ongoing war, despite traders' concerns about warehouse gluts [1].
CONCLUSION
Copper inventories have reached unprecedented scarcity, with only 9.1 days of available supply, supporting continued CTA demand. Despite risk-off sentiment and concerns about warehouse gluts, CTAs are expected to modestly increase long positions in copper. The market takeaway is a tightening copper supply that could support prices in the near term.