Copper prices are a classic macroeconomic indicator but traders might want to watch market moves with a healthy does of skepticism.
The Wall Street Journal just published a story about warehouse hoarding.
Two major commodities-trading firms have amassed much of the world’s copper supplies in their warehouses, partly by paying to divert shipments away from other storage hubs, traders and analysts say.
The hoarding is making it more difficult for firms to looking for immediate delivery — something that could skew prices. They also say it takes 4-6 months for delivery, which adds inefficiency to the global supply chain.
One of the companies cited in the story also points to slowing demand as a reason that supplies have built up.
A spokeswoman for Trafigura declined to comment on the company’s role in the warehousing system, but said most of this year’s increase in copper stockpiles is due to slowing demand from China and rising mine production.
Other base metals point to similar trends as copper so it might not be time to sound the alarm bells but I wouldn’t be writing a trading algorithm tied to copper.
