Visible copper stocks are surging higher.

Those registered with the Shanghai Futures Exchange (SHFE) jumped again this week to 241,616 tonnes. They are now up by 136,000 tonnes since the start of January and close to the record high of 247,591 tonnes seen in March 2013.

Indeed, stripping out the small bonded warehouse component, which was introduced in 2011 and which has been unchanged so far this year, SHFE stocks are already at all-time highs.

Stocks registered with the London Metal Exchange (LME) also continue to boom. At 333,575 tonnes they are back at levels last seen in the closing days of 2013.

The speed of the build has been turbo-charged. Total (Swiss: FP.SW - news) exchange stocks of copper, including those held in CME warehouses, have doubled in the space of three months to 582,000 tonnes.

Yet this flood of metal into exchange warehouses hasn''t been accompanied by price weakness.

Quite the opposite in fact. After the January bear assault on both Shanghai and London markets, LME copper for three month delivery has clawed its way back from a low point of $5,353 per tonne to above $5,800.

Even more surprisingly, the deluge of metal has failed fully to break the spread tension in the London market. The benchmark cash-to-three-months period remains in backwardation, although the cash premium has eased to $23 from over $80 in January.

A dominant long position-holder is still hanging in there, controlling stock and cash-date positions equivalent to between 50 and 80 percent of available tonnage, which today stands at 276,775 tonnes.

This bear-bull stand-off, it seems, isn''t over yet.

At its heart lie differing views as to what this inventory surge is telling us and how long it has to run.

SURGING SURPLUS...

This year''s build in copper inventory appears to play to all the bear arguments for further price weakness ahead.

This was always supposed to be a year of supply surplus thanks to a mini boom in copper mining which is now feeding through into rising refined copper output.

National refined metal production in China, for instance, grew by 16 percent in the first two months of this year. These figures suffer a serious credibility problem but the trend is the more reliable indicator and it is rising at an accelerating pace.

Copper''s supply-side strength is now complemented by demand-side softness, particularly in China and particularly in China''s construction sector, a key end-use market for copper products.

Sharply rising visible inventory in China, in other words, is exactly what might have been expected under such conditions.

And with Chinese import activity remaining slow over the first two months of the year, rising LME inventories are also a logical development.

Seen this way, stocks are surging because the market''s surplus is surging.

...OR IS IT THAT SIMPLE?

Markets, however, are rarely so simple. And never that simple when it comes to copper.

There are other factors at work in this inventory build.

The first is seasonal, reflecting the double year-end holiday effect on manufacturing activity in the world outside China and in China itself. Even during recent times of supply famine, it was not unusual for copper stocks to rise over the November-March period of any year.

This year''s seasonal build has been accentuated by buyer behaviour, again particularly in China.

Chinese buyers are thought to have gone light on annual term supply contracts this year, having baulked at committing to producer premiums significantly higher than spot premiums.

Right now, set against a backdrop of expectations for lower prices and poor order-book visibility after the Chinese new year, this is translating into reduced spot market activity.

Such buyer reticence almost always carries a bullish flip side if prices either fail to conform to expectations and/or end-use demand picks up, forcing buyers to lift spot purchases.

GRAVITATIONAL PULLS

The hardest part of the current stock build to quantify is the relocation of metal from off-market darkness to on-market light.

In the case of the LME, that stubborn backwardation is still encouraging the movement of copper into exchange sheds, a natural gravitational pull that is being accentuated by incentives to warrant offered by some warehouse operators.

In China itself, it''s possible we are still seeing the long tail effects of last year''s Qingdao port scandal.

The subsequent loss of appetite for financing copper as collateral has reduced the pull of metal into Shanghai''s bonded warehouse zone. But it also overlays a broader tightening of credit conditions across much of China''s industrial sector.

Many smaller players are either closing or seeking tie-ups with bigger players as a way of re-opening closed credit lines.

As credit for stocks financing reduces, even that for manufacturing entities, more metal flows into the local exchange sphere.

STAND-OFF

Such one-off drivers wouldn''t have generated the sort of stocks rises seen since the start of the year in the absence of surplus metal.

But they have almost certainly exaggerated the scale of that surplus.

Which is why copper is still trapped in a bull-bear stand-off, both in outright price and more acutely in spread tension.

The puzzle of where copper prices move next comes with many moving parts.

Supply side surprises are accumulating, most recently in the form of BHP Billiton (NYSE: BBL -news) ''s warning it expects to lose up to 70,000 tonnes of production at its Olympic Dam mine in Australia.

The expected surplus is being steadily whittled down as analysts update their supply expectations.

Scrap supply is stretched, as it always is after the sort of price shock seen in that January bear attack.

Somewhere lurking in the shadows is China''s state stockpiler. The State Reserves Bureau was active last year and is expected to be active again this year, given prices look even more attractive.

But much is also going to hang on that most ambivalent and problematic of market indicators, exchange stocks.

They''re still rising. But for how long?

-2015Guangzhou int’l non-ferrous metals exhibition