China copper smelters face uncertain H1 outlook - analyst
Shanghai. February 6. INTERFAX-CHINA - Despite indications of a strong performance in 2011 and the recent recovery in copper cathode prices, China's copper smelters continue to face an uncertain outlook in the first half (H1) of 2012 as real consumption remains weak, analysts told Interfax Monday.
Preliminary results released last week by two major domestic smelters, Yunnan Copper Co. Ltd. and Tongling Nonferrous Metals Group Holdings Co. Ltd. (TNMG), showed positive expectations for 2011. Yunnan Copper forecast net profit of RMB 615.97 million ($97.62), up 31.05 percent, while TNMG sees profits of RMB 1.39 billion ($220.29 million) to RMB 1.48 billion ($234.55 million), up 55 to 65 percent respectively.
Antaike analyst He Xiaohui attributes the performances to production expansion and higher copper prices, which averaged RMB 66,260 ($10,500) per ton in 2011, up 12 percent from RMB 59,099 ($9,365) per ton the previous year.
Though prices declined in H2 2011 to bottom out at RMB 51,000 ($8,082), production costs for domestic smelters, excluding labor and overhead, remained profitable at around RMB 30,000 ($4,754) per ton.
Similarly upbeat results are expected from other smelters, while on another positive note copper cathode prices have seen a rebound in 2012 on the back of decreasing stockpiles at the London Metal Exchange (LME), favorable economic data from the U.S. and seasonal buying by investors at the start of the year.
But without a marked recovery in physical demand in China, the outlook for the industry this half remains far from certain, according to He.
Weak real consumption in China has seen the country's copper stockpiles swell in recent months. Imports last year were driven largely by demand for the metal to use as collateral for loans under Beijing's tight credit restrictions, especially mid-year when the arbitrage window between London and Shanghai was small, according to Umetal analyst Wang Lixin.
Prices are likely to decline in the near-term as long as real demand remains weak, she says.
A loosening of Beijing's credit restrictions anticipated in the second half, however, could help the sector recover later in the year, noted Antaike's He.
-GD