Signs of an end to Chinese tightening related de-stocking in copper – Goldman Sachs

Analysts at Goldman Sachs believes that the recent tightening in Chinese short-term liquidity and interest rates likely resulted in substantial involuntary de-stocking at the end user and semi-fabricator level in April (evidenced by lower April refined imports of iron ore and copper, rising ex-China stocks), which could have made the copper and iron ore markets appear looser than their underlying balances, and placed downward pressure on sentiment and prices.

Key Quotes

“This also explains some portion of the weakness in Chinese copper and iron ore imports in April, and broader weakness in the Chinese import data.”

“The copper de-stocking already appears to be coming to an end, evidenced by SHFE copper spreads tightening, Chinese domestic premiums turning positive, and Chinese copper bonded premiums rising over the past two weeks. While the market has been concerned about the forced de-stocking following from the policy tightening (which appears to coming to an end now in copper), the key for us is how much the tightening in monetary conditions will affect end-use consumption growth, as this is what will ultimately drive the refined copper balance.”