China copper shares plunge on weak demand, high stockpiles
Shanghai. December 16. INTERFAX-CHINA - Shares of China's three major copper smelters on the Shanghai Stock Exchange have plummeted this year amid weak overseas demand and high domestic stockpiles, an analyst told Interfax Dec. 15.
Shares have plunged after peaking on Jan. 4 this year, with Jiangxi Copper Co. Ltd. down 53.52 percent to RMB 21.45 ($ 3.38) on Dec. 15, Yunnan Copper Co. Ltd. down 44.18 percent to RMB 15.91 ($ 2.51), and Tongling Nonferrous Metal Co. Ltd. down 52.98 percent to RMB 16.74 ($2.64).
Underlying the drops is turbulence in the stock markets caused by ongoing instabilities in the global economy. Copper is particularly exposed due to its widespread use in construction and power cables, making the metal a bellwether economic indicator and earning it the moniker "Dr Copper".
The situation has been exacerbated by high stockpiles of the red metal in China left over from traders building reserves this time last year to profit from an expected price rise after the Chinese New Year holiday, Luzheng Futures analyst Zhang Xi told Interfax.
"Falling prices have shrunk smelters' assets considerably given the high stockpiles they are currently holding," said Zhang. The most actively traded copper contract on the COMEX division of the New York Mercantile Exchange, for March delivery, fell 0.4 percent on Dec. 15 to settle at a seven week low of $7,202.49 per ton.
On the supply side, the domestic market is in surplus while downstream demand shows little sign of recovery, further increasing the pressure on prices. China's copper output in the first 11 months was up 9.24 percent year-on-year at 4.78 million tons, while imports climbed 17.87 percent month-on-month in November to 452,022 tons. Output is likely tail-off somewhat now that low prices are forcing domestic smelters to halt production.
Diminishing demand from developed economies has also played a role. China's refined copper exports plunged 79.21 percent on an annual basis in October.
The Ministry of Commerce (MOFCOM) moreover warned last week of a difficult year ahead for the export market. Europe and the U.S., two major destinations, are unlikely to see a significant rise in demand next year, said Wang Shouwen, the ministry's head of the foreign trade department.
China's trade growth slowed faster than expected in November, with exports to Europe rising only 4.9 percent in November, below overall export growth of 8.8 percent. European export growth in the first 11 months meanwhile was 15.1 percent, six percentage points lower than the overall figure, MOFCOM spokesman Shen Danyang said Dec. 15.
Dwindling exports could lead to a trade deficit for China in the first quarter (Q1) of 2012, Jian Chang, vice-president and China economist at Barclays Capital Asia, wrote in China Daily Dec. 13.
-KHM/GD