London 10/06/2016 - Total global copper stocks at the end of 2015 were an estimated 4.8 million tonnes or 22 percent of global demand, with 4 million tonnes of that total visible, JP Morgan said.
The visible portion rose to 4.1 million tonnes in the first two months of 2016, ther bank said in a research note. Of that total, around 2 million tonnes are stored by China's State Reserve Bureau and are relatively illiquid.
Another 1.1 million tonnes are held by producers, consumers and merchants. Most of this is believed to be held at producers and to some extent traders because consumers do not want to tie up capital in holding stocks.
This category of stocks averaged 730,000 per month between 2004 and 2012 but now the inventories are almost 370,000 tonnes higher; JP Morgan would normally expect this metal to make its way to market eventually.
Among the rest, 540,000 tonnes were on global exchanges and Chinese bonded stocks are around 470,000 tonnes, the bank added.
Exchanges have always been the "last resort" for metal holders to deliver their excess metals to get cash if there are no customers.
Chinese copper smelters continued to deliver metal into LME-listed warehouses because of attractive incentives and while the physical market is lacklustre. Copper LME inventories increased by an impressive 60,000 tonnes or 39 percent over the first four days of last week, all of which was into the LME's Asian network of warehouses.
"The location and size of the deliveries mean the copper most likely came from China, reflecting an oversupplied domestic market," the bank said.
The sudden arrival of copper into Asian LME-registered warehouses reignited concerns that excess metal previously locked away in trade deals could return to the market while financing deals unwind. This could affect a large part of the bonded inventory, it added.
"We believe prices need to move lower to induce more supply adjustments," the bank noted, forecasting a dip to average $4,300 per tonne in the third quarter of 2016.
LME copper hit a four-month low near $4,500 earlier this month before recovering in Monday trading in technical corrective buying - it was last at $4,549 per tonne.
(Editing by Mark Shaw)