Copper futures in London have reached their widest contango since at least 1994 as inventories build and demand concerns persist amid a slowdown in global manufacturing.
The spot contract traded at a discount of $70.10 a tonne to three-month gold on the London Metal Exchange on Monday before partially recovering on Tuesday. That's the highest level in nearly 30 years of data compiled by Bloomberg. A structure known as contango indicates ample physical supply.
Copper prices have been under pressure since peaking in January as China's economic recovery loses momentum and global monetary tightening hurts the outlook for demand. Copper inventories at LME warehouses have risen sharply in the past two months, bouncing back from very low levels.
"We are seeing invisible inventory being released into exchanges," said Fan Rui, an analyst at Guoyuan Futures Co. He expects inventories to continue to rise, causing the spread to widen further.
While Goldman Sachs Group Inc. believes low inventories are supporting copper prices, an economic barometer, But Beijing Antaike Information Development Co., a government-backed think tank, said last week that the downward cycle in copper prices could last until 2025 as global manufacturing shrinks.
Guoyuan's Fan said China's CMOC Group Ltd. shipped out copper stocks that had been overstocked in the Democratic Republic of Congo, boosting supply in the market.
LME copper fell 0.3% to $8,120.50 a tonne as of 11:20 a.m. London time, after closing at its lowest level since May 31 on Monday. Other metals were mixed, with lead up 0.8% and nickel down 1.2%.
