Analysis of the inventory of the hottest copper in

Copper bonded zone inventory analysis

Abstract: the global refined copper inventory can be divided into five parts: Overseas explicit Inventory (usually we say LME inventory), overseas implicit inventory, bonded zone inventory, domestic explicit Inventory (SHFE inventory) and domestic implicit inventory. Hidden inventory is the non-public copper inventory of manufacturers, traders, processors and state reserve. Copper inventory in bonded areas refers to refined copper stored in bonded warehouses approved by the customs. The inventory in the bonded area is directly monitored by the customs and is generally carried out near the port of entry and exit

the global refined copper inventory can be divided into five parts: Overseas explicit Inventory (usually referred to as LME inventory), overseas implicit inventory, bonded area inventory, domestic explicit Inventory (SHFE inventory) and domestic implicit inventory. Hidden inventory is the non-public copper inventory of manufacturers, traders, processors and state reserve. Copper inventory in bonded areas refers to refined copper stored in bonded warehouses approved by the customs. The inventory in the bonded area is directly monitored by the customs and is generally carried out near the port of entry and exit

at present, LME inventory is about 300000 tons, the inventory in the previous period is about 150000 tons, and the inventory in the bonded area is about 500000 tons. The inventory in the bonded area has a certain impact on the supply of refined copper and market sentiment

second, the factors affecting the inventory in the bonded area

1. Refined copper import and export

first of all, it is worth mentioning that there is an inventory transfer process between the bonded area and overseas inventory. When the premium in the bonded area rises, far beyond the premium of LME, the overseas inventory will be transferred to the bonded area, so as to prevent the premium from continuing to rise. However, if the premium in the bonded area does not rise, even when the premium in the bonded area decreases or the premium in LME rises, there is also a process of transferring the inventory in the bonded area to the inventory in LME. In short, once the premium of one party between the bonded area and overseas inventory becomes profitable, it will cause changes between the two, and the two maintain a dynamic balance process

as the reservoir of copper inventory, the most fundamental purpose of the bonded area inventory is to serve the domestic demand for copper. When the import profit is turned on, a large number of copper inventory will be transferred from the bonded area to the domestic inventory. It can be clearly seen from the figure that when the import profit window opens, the inventory in the bonded area decreases significantly. June 2013 and October 2015 were the low points of this situation. When the import loss expands, the inventory in the bonded area increases significantly. When the loss decreases, the inventory in the bonded area decreases and the inventory flows into China. Therefore, we can judge that there should be a close relationship between the inventory changes in the bonded area and the significant decline in the ability of China's refined steel to resist deformation and the import of copper. It can be seen from the figure that there is an obvious reverse relationship between the import data of refined copper and the data of the volume must be sealed area in the working process of bonded copper

the copper inventory flowing from the bonded area mainly has the following flows: some are registered as warehouse receipts, selling goods on the disk to earn import profits, or refining enterprises carry out virtual delivery, which are bonded area inventory transformed into China's dominant inventory. The other part is to take the trade document bill of lading as an endorsement, so as to earn the interest margin between the bank acceptance bill and financial products. The copper inventory in this part of arbitrage is about 70000 tons. Because of the high cost of delivery warehouse, this part of inventory will not be registered with warehouse receipts, so it is not mentioned in the domestic explicit inventory, so it has become a part of the domestic invisible inventory. Another part of the bonded area inventory is converted into invisible inventory in the form of state reserve after import, which is relatively large

2. Financing arbitrage in the bonded area

the inventory data in the bonded area reached a high level of 1million tons at the beginning of 2013. The most fundamental reason was the popular use of copper inventory in the bonded area for trade financing at that time. That is, using the letter of credit settlement and environmental protection calculation method when the payment for copper trade is made, as well as the exchange rate difference between the US dollar and RMB and the income difference between the assets at both ends. This profitable trade financing and arbitrage supported the rapid flow of copper to China's bonded areas. It can be seen that LME inventory decreased significantly in 2013, while China's Bonded Zone inventory once rose to the level of about 1million tons. With this kind of financing Arbitrage Behavior, a large number of copper was held in the financing arbitrage of Standard Chartered Bank and Glencore for intermediary services. In fact, at that time, this part of copper had been locked and basically had no liquidity. It can be seen from the figure that even after the import profit window is opened, the inventory in the bonded area is still 350000 tons after the decline. At that time, it was conservatively speculated that 300000 tons of copper in the bonded area was actually used for trade financing arbitrage

it can be seen that the focus of copper inventory in the bonded area has been moving downward recently, mainly because the demand for financing arbitrage in the bonded area is gradually disappearing. With the increase of US dollar interest rate, the depreciation of RMB and the continuous decline of the return on investment at the asset side of RMB in the past two years, it is difficult to obtain the foreign exchange spread through overseas financing. Moreover, the increased volatility of the RMB has also accelerated the risk of such arbitrage. Therefore, the demand for financing arbitrage gradually decreases, and the inventory center of gravity in the bonded area gradually moves down. In fact, the recent fluctuations in the bonded area are mainly reversed with the import and export of refined copper. It can be further confirmed by the upward discount trend of the inventory in the bonded area

recently, the inventory in the bonded area has continued to decline, but we can see that the big difference between now and before is that the previous decline in the inventory in the bonded area was accompanied by the rise in the premium in the bonded area, but now after the decline in the inventory in the bonded area, the premium is still at a low level, and there is no sharp rise in the premium. As mentioned above, as the demand for financing arbitrage gradually decreases, the inventory in the bonded area gradually returns to the normal level, and this process will not be accompanied by a sharp rise in the premium

III. future trend of Bonded Zone inventory

from the early stage, we can see that with the depreciation and fluctuation risk of RMB, the opportunity of financing extension meter connected to the amplifier and amplifier connected to the experimental machine to measure deformation arbitrage disappears, and the bonded zone inventory of 300000 tons of copper previously locked by the trade financing sleeve is converted into liquid copper inventory. This inventory will gradually flow to the domestic market, but the release process will be relatively slow. Therefore, the judgment of Bonded Zone inventory in the later stage can be mainly analyzed through the import profit and loss of refined copper

from the perspective of demand, the main increase in copper demand is still in China and the United States. In the United States, the core of Trump's policy agenda is to reduce taxes and expand infrastructure investment. Tax cuts are expected to stimulate investment, and expanding the scale of infrastructure investment will also help investment usher in positive growth. Trump's policies are expected to boost U.S. economic growth in 2017 and support copper demand. Domestically, in the context of power system reform, the whole power construction is in a continuous upward trend, and the rapid growth of distribution field will also bring new increment to copper demand. However, with the deepening of real estate regulation in China's economy, the current round of rapid rise in house prices and hot real estate sales will change. The tightening of the real estate industry will drive the consumption of downstream copper industries to fall, and copper consumption will be under certain pressure. In addition, domestic monetary policy is subject to the pressure of deleveraging, rising inflation and depreciation of the RMB exchange rate. The easing will be limited, and the domestic economy will continue to decline. From the perspective of exchange rate, in 2017, as the domestic economy is still down, and the U.S. economic growth will grow steadily, the Federal Reserve is still in the cycle of raising interest rates, the dollar index will continue to strengthen, and it is expected that the RMB will continue to depreciate against the dollar in 2017. On the whole, the import profit of refined copper next year is expected to be difficult to open, and the inventory in the bonded area may rise to a certain extent. However, due to the current reduction in the demand for trade financing arbitrage, the inventory in the bonded area will not rise too much