Copy/pasted in part from today's issue of TD Securities Morning Action Notes. There are references to graphs which I'm not including because I don't think they're necessary. In busier times I'd post this on the OT forum but...

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Do Not be Too Complacent about Copper

Dwindling Visible Inventories Suggest that the Market is Tightening

Global exchange copper inventories continue to drop.
Last week, total LME copper inventories dropped below 200,000 tonnes for the first time since mid-October 2008. On-warrant LME copper inventory (or metal that is actually available to the market) has fallen to ~100,000 tonnes; the first time it has been this low since January 2008. Interestingly, SHFE copper stocks have also been falling sharply — most recently reported at ~97,000 tonnes, down from a peak of 213,000 tonnes in mid-March. Total global exchange copper inventories have declined by almost 600,000 tonnes over the past 12 months, or ~66%.

The sharp drop in visible exchange inventories has been accompanied by an increase in off-exchange inventories in China —
reports suggest that bonded warehouse stocks peaked at +800,000 tonnes at the end of March. But bonded warehouse stocks are reportedly declining now as well — recent estimates suggest that they have declined to ~700,000 tonnes. Declining SHFE and bonded warehouse stocks suggest that availability of copper is tightening in China. Tighter availability of copper scrap (following the decline in copper prices) and measures supporting social housing development should support demand for copper. Wood Mackenzie is projecting Chinese copper demand growth of 9.1% year-over-year in 2014, resulting in copper consumption of ~10 million tonnes (or 45% of global demand).

The decline in global copper inventories has been met mostly with a large yawn by the copper market with LME prices hovering in the low-US$3/lb range.
This lack of interest in lower visible stocks can be attributed to the sense that there is a large pool of copper in China (bonded warehouse stocks) that is available if and when needed. There is also a perception that this metal should start flowing into the LME at some point — possibly when the incentive to do so is high enough (i.e. when the arbitrage between LME and Shanghai copper prices is attractive), which is not the case at this point.

The lack of reaction to steadily dwindling inventories may also be attributed to the expectation that the sharp rise in copper mine production over the past several years (and again this year) means that the metal will eventually come to market (Exhibit 3).
But with copper concentrate exports from Indonesia still in limbo, Chinese copper demand apparently quite healthy, and reports that China's State Reserve Bureau purchased 200,000 tonnes of copper in recent months, the much discussed 300,000-tonne 2014 surplus may have just disappeared.

The disappearing copper market surplus is not a new phenomenon.
In early 2013, Wood Mackenzie was projecting that the copper market surplus for that year could be as high as 680,000 tonnes. Over the course of the year, the forecast surplus was steadily eroded such that the surplus for last year was actually closer to just 100,000 tonnes. A similar pattern is developing in 2014. In mid-2013, there was an expectation that a significant copper surplus would develop in 2014 at +/-700,000 tonnes. This surplus forecast has declined significantly over the past 12 months to the point that it is now widely thought that the market surplus should be ~300,000 tonnes this year. In the context of a global copper market of more than 21 million tonnes, a surplus of 300,000 tonnes is not overly material and certainly no reason in and of itself to expect that the copper price is likely to head lower from current levels.