The prices and inventories of the London Metal Exchange (LME) have an important impact on the production and sales of non-ferrous metals worldwide.
Since physical delivery is the last option for traders, changes in LME metal inventories become an indicator of the balance of supply and demand in the global metal market.
LME will issue a detailed inventory report (Stock Breakdown Report) every trading day, which reflects the inventory changes of major metal species as of the previous day.
The report covers non-ferrous metal varieties: copper, aluminum, zinc, nickel, tin, lead, cobalt.
As can be seen from the figure below, the first two columns of the table are classified and displayed by inventory area, followed by the main detailed items, including: inventory, registered warehouse receipt, canceled warehouse receipt, warehouse entry, warehouse exit, etc.
Among them, inventory = registered warehouse receipt + canceled warehouse receipt.
Glossary:
1. Inventory: Inventory of related metals and their increase or decrease.
2. Warehousing: Inventory increases, and registered warehouse receipts increase correspondingly.
3. Out of the warehouse: the inventory is reduced, and the corresponding quantity of canceled warehouse receipts is reduced.
4. Registered warehouse receipt: opposite to canceled warehouse receipt, it refers to a position that has not been traded in the market and can continue to be traded.
5. Cancellation of warehouse receipts: opposite to registered warehouse receipts, it refers to positions that have been traded in the market and can no longer be traded.
Generally speaking, cancellation of warehouse receipts represents willingness, and entry and exit of warehouses represent actions.
When the registered warehouse receipt becomes a canceled warehouse receipt, the registered warehouse receipt will decrease, and the canceled warehouse receipt will increase the corresponding amount, which has no impact on the inventory as a whole.
When the canceled warehouse receipt becomes a registered warehouse receipt again, the canceled warehouse receipt will decrease, and the registered warehouse receipt will increase by a corresponding amount. At this time, the change of the canceled warehouse receipt caused by the outbound warehouse will not be counted.
Generally speaking, the increase of canceled warehouse receipts indicates the willingness to pick up the goods, and the decrease of canceled warehouse receipts indicates that the original willingness to pick up the goods is cancelled.
The simple understanding is that the stock volume is large and the market transactions are active; the transaction volume is small and the market transactions are sluggish; the amount of registered warehouse receipts increases, funds enter the market, and the possibility of (rising/decreasing) price trend continuation increases; the volume of registered warehouse receipts decreases or No change, money out of the market, (up/down) price trend or end.
Metal inventory levels are the result of a combination of supply and demand, which reflects the tightness of the physical market. Lower inventory levels call for higher prices to stimulate supply and dampen demand.
This means that prices are more sensitive to changes in inventories when inventory levels are low.
Each designated warehouse submits reports to the LME every day, reporting inventory, outbound and inbound data. These data are released to global traders and metal traders through media organizations such as Bloomberg and Reuters, and it largely affects market conditions.
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