Copper Inventories with Producers

For the last two years the off-exchange copper inventory in China has been an important item when evaluating the copper market. While the anecdotal evidence has been strong, it has proven extremely difficult to come up with meaningful hard data. Nevertheless, a number of blogs particularly FT Alphaville have provided significant insight:

• China’s literally ground-breaking copper inventories (August 14, 2012)
• China is being buried alive in copper (April 26, 2012)
• Let’s count the copper with dust on it (May 31, 2011)
• China’s bonded-warehouse copper mystery (December 21, 2010)

We would like to add one additional piece to the puzzle by looking at producers inventory, particularly Codelco, the largest copper producer worldwide. While Codelco is not a publicly listed company, commendably it makes its quarterly reports reports available in the public domain.

We went through the the financial reports and focused on two metrics: inventory and revenues. We understand that inventory is broader than finished products. Nevertheless the ratio between inventory and revenues (inventory expressed in months of production) is very revealing:

The last data point is for the quarter ending on September 30, 2012. We view it to be quite interesting that the two previous episodes with the inventory exceeding 2 months of production were (i) in 2003 with copper prices below USD 2'000 per ton and (ii) in early 2009 with copper prices falling below USD 4'000. At the moment the (relatively) high inventory levels have not resulted in any price reaction.

We would also like to point out to some interesting movement in copper data as jsut published in the FT (Chinese copper data’s warning signal).

Chinese copper data have just taken a worrying turn for the worse. The country’s imports of the red metal tumbled 22 per cent in October to their lowest in more than a year. At the same time, stocks of the metal have risen to a record high: in October alone, inventories at Shanghai exchange and bonded warehouses collectively rose by about 135,000 tonnes, and are now not far off 1m tonnes, most traders believe. Put those two facts together, and the Chinese copper market appears to be flashing a warning signal. Indeed, back-of-the-envelope calculations suggest a month-on-month drop of almost 20 per cent in Chinese apparent copper demand in October.

Chile's Population (2012 Census)

The preliminary results of the 2012 Chilean census were recently covered in an Economist article: "Chile's economic statistics".

“Casengate”, as it has become known, is not the only recent statistical anomaly in Chile. Preliminary findings from this year’s census found only 16.6m Chileans. That was surprising since the projection by the National Statistics Institute (INE) from the previous census in 2002 was 17.4m. The new number seemed to confirm worries that this year’s census was poorly conducted. But it allowed Felipe Larraín, the finance minister, to point out wryly that the country’s income per head, at purchasing power parity, is around $19,000—a handy upward leap from $17,222 last year.

This lead to an response by one of Chile's leading economist, Dr. Klaus Schmidt-Hebbel from the Catholic University of Chile:

Furthermore, the 2012 census showed that Chile’s population fell well below the joint UN and government projection, and not, as you said, only below the projection provided by the National Statistics Institute. You infer that “the new number seems to confirm that this year’s census was poorly conducted.” In other words, you are saying that if reality differs from a projection based on ten-year- old data then reality must be wrong. Nor did you mention that the 2012 census was taken over a three-month period in order to survey a larger proportion of Chile’s population, whereas previous censuses were taken on one day. As a result the 2012 census had the largest coverage in Chilean history: 98.34% of households.

Let's look at the data. The following is an extract from the aforementioned preliminary results, which coincides with the 16.6 million mentioned by the Economist:

Looking at the INE's vital statistics report from 2010, the numbers are as follows (especially note the footnote 1: "the census omission in 1960, 70 y 82 was 4,3%, 6,6% y 1,5%, census 1992 1,1% and for the census 2002 3,8%"). Unfortunately, it is not entirely clear whether the data for the census years is before or after correction for census omission.

The 2010 vital statistics shows a strange anomaly with regard to the population growth which turns negative for the census years and then considerably above trend for the subsequent years (this assumes that omission have been incorporated in the above data set).

Unfortunately, the INE has a third data set, namely it's population projection based in the 2001 census. This looks as follows:

This leads to the following three (four) series of population data, which have been disseminated by the INE.

I started writing this post believing that the the difference between the preliminary census results and the population projection and vital statistics could be pretty much explained by an omission rate in line with the previous census. Now, I'm struggling to understand what is going on.

Demographic projections are pretty stable. In Chile's case it would mean the projection was more than 800'000 higher than the census results (or approximately 5%), almost 100'000 on an annual basis. Of the following possible explanations, I only view the last one as plausible:

• birth's are over-reported by 100'000 birth a year (approx. 150'000 instead of 250'000)
• death are under-reported by 100'000 birth a year (approx. 200'000 instead of 100'000)
• net emigration is 100'000 a year
• census omission rate continues do be in the order of 5%