Metal polishing liquid, aluminum alloy polishing liquid, stainless steel polishing liquid, plastic polishing liquid Jiangmen Gude Polishing Equipment Co., Ltd , https://www.kokipolishing.com
Despite the fact that LME inventory has more than doubled over the past year and the first major oversupply since 2009 has occurred, the cost to extract copper has risen sharply, and waiting times have extended significantly. According to Bloomberg, buyers in Shanghai are now paying $135/ton above the LME futures price — a steep increase from $55 last year. Some manufacturers in Malaysia have even stopped purchasing copper from local LME warehouses, as wait times for pickup have stretched from three days in early 2012 to three months today.
While copper prices have dropped 29% from their two-year peak, many manufacturers haven't benefited because financial agreements have kept copper out of the open market. Société Générale estimates that up to 30% of LME-tracked copper is tied to such financial arrangements. Currently, 84% of LME copper stocks are concentrated in just three locations, and delays caused by port strikes in Chile have further increased waiting times.
So far this year, the LME copper benchmark contract has fallen 8.4% to $7,265.5/ton. Goldman Sachs has also lowered its 12-month copper price forecast to $7,000/ton. Meanwhile, Standard Chartered estimates global copper output will rise 4.3% to 21.1 million tons this year, while demand is expected to grow 2.2% to 20.9 million tons. According to the International Copper Research Group in Lisbon, copper has been in short supply for the past three years.
On the other hand, the number of pickup applications for LME copper has reached record levels recently. As shown in the chart below, demand from Asia — particularly China — has surged dramatically: 
Zerohedge has weighed in on this situation:
While many media outlets see this surge in LME copper demand as a sign of “recovery,†we believe the story is more complex. The spike in demand is largely driven by Asian markets, especially China, which may not reflect true economic strength. We don’t know the exact reason, but the recent surge in copper pickup requests closely mirrors Goldman Sachs’ discussion about the end of the “unlimited copper financing†era.
China’s repeated mortgage financing has created a system where copper in bonded warehouses may not be enough to meet letter of credit requirements when they mature. This could explain the sudden increase in LME copper pickup requests — it reflects urgent needs from Chinese trading companies trying to lift financing deals.
Remember, a month ago, gold prices plunged while physical gold demand spiked. Now, with a sharp rise in spot copper demand, it’s important to look closely at what’s really happening in the real market.
Looking back at our previous article, “The End of the Copper Financing Era? Is It China’s Lehman Moment?†we explained how the final step in copper financing involves each ton of copper in the Shanghai Bonded Zone supporting a letter of credit liability worth tens of times its value.
During the validity period of a letter of credit (typically 6 months, sometimes 3–12 months), this process can be repeated up to 10–30 times, depending on document processing time. This means the total nominal value of a letter of credit based on a certain amount of bonded or imported copper can be 10–30 times the value of the actual copper involved in a year.
Therefore, the rising demand for copper spot is likely to satisfy the need for real collateral behind letters of credit. This may explain why copper prices have surged recently, yet remain weak overall.
If the copper used as collateral is returned to the issuing bank, the financing transaction ends, and the bank would have no reason to hold such high-value assets. In that case, the market may return to an oversupply scenario.
Abstract When LME copper stocks hit a 10-year high, manufacturing companies are still paying the highest spot pick-up premium in nearly seven years. This is due to financial transactions locking up large volumes of copper, while long queues outside warehouses continue to grow. Although LME tracks inventory, the supply chain is not functioning as expected.