Incentivizing coppers movement into London Metal Exchange
warehouses for financing deals is unhealthy and doesnt
reflect the underlying market fundamentals, Corporación
Nacional del Cobre de Chile (Codelco) president and chief
executive officer Thomas Keller Lippold said.
While producers might see
short-term benefits in higher premiums, delays in accessing
material in warehouses due to long queues are also not a
"In the longer term, I
dont think its a good thing for the industry that
there are quasi-artificial incentives that dont let the
underlying market conditions fully express themselves in terms
of prices," he told AMM. "Its not very healthy
that it takes four to five months to take material out of the
marketthat is not a reflection of a well-functioning
New Orleans, Antwerp,
Belgium, and Johor, Malaysia, are the main warehouse
locations offering incentives to attract metal into storage,
with stocks soaring as a result.
"Certain factors are influencing
the decisions to lodge material into the warehouses which
dont necessarily relate to the supply-demand balance,"
the Codelco chief said.
"Its the combination of
three factors: we have a market contango, very low interest
rates and there are strong incentives to bring material into
the warehouses. So quite frankly, I think the increase in
official warehouse stocks not only reflects a supply-demand
balance but also the combination of these factors, which
clearly provide an incentive to stock material in warehouses,"
Codelco sees copper in a small
surplus for 2013, but the impact of increased supplies on
prices has been "relatively minor, as expected," he said.
"Were, therefore, not particularly worried."
That stock rise will continue in
2014, but still in a way that wont cause a price
But in contrast to LME stocks,
which rose by about 250,000 tonnes in the first quarter, stocks
held in bonded warehouses in China are declining as the country
works through its store of metal, the Codelco executive
"Its pretty much a fact
that there has been a decline (in bonded stocks), albeit not to
compensate for what we have seen in terms of stock increases in
LME warehouses. All in all, the market is developing as
expected, with not too many surprises," he said.
Codelco anticipates 5- to
6-percent growth in Chinese refined copper demand this year,
with U.S. growth also showing an encouraging risealbeit
at a much slower pace.
"Weve increased our sales
in the USA in the first quarter, reflecting our sales campaign
last year, so weve witnessed an increase in
demandalbeit a small one. Maybe the USA got slightly
ahead of itself, but the fundamentals of the U.S. economy are
very sound, especially with the prospects for the manufacturing
sector, shale gas, and so on," he said, adding that Europe
remains "problematic" in contrast.
"One week you have some good
news, the next week you have bad news, so its a roller
coaster still in that part of the world. Im more
encouraged about whats happening in the USA."