China traders bearish on copper imports despite strong domestic demand
Shanghai. October 14. INTERFAX-CHINA - Chinese traders are bearish about buying copper abroad after imports hit a 16-month high in September and the price of the metal continues sliding, several sources told Interfax Oct. 12.
Arbitrage trades are becoming more risky as the price gap between London and Shanghai is closing up, a Shanghai-based metals trader surnamed Yang told Interfax. The downward trend in global copper prices is also exposing shipments to devaluation during the delivery period, he added.
Unstable prices this year have fostered a degree of market uncertainty as to when copper will bottom out, Yang noted, with the metal plummeting from a high of $10,000 per ton on the London Metals Exchange (LME) in February to $6,635 in early October amid gloom in the global economy.
Traders might have bad memories of similar price fluctuations in 2008, Yang added, when copper hit an all-time high of $8,940 per ton in July prior to the financial crisis, only to drop below $3,000 by December.
With the price sliding and outlook for recovery grim, traders are importing the metal to meet demand rather than build stockpiles, Yang said.
Despite negativity among traders, Chinese customs data released Thursday show copper imports continuing to bounce back since hitting a low in June, reaching a high of 380,526 tons in September, up 11.79 percent on a monthly basis.
Import volumes were low in the first half (H1) as traders and smelters consumed large stockpiles built up amid rising prices last year, Zhang Xi, an analyst with Luzheng Futures Co. Ltd., told Interfax.
According to Zhang, China's copper stockpiles totaled 1.9 million to 2 million tons at the end of last year, with reserves at the Shanghai Futures Exchange of only 132,000 tons.
Meanwhile, industry association officials in China have maintained forecasts for buoyant domestic demand this year, despite worries in the global markets that the world's largest copper user would see a decrease in consumption.
Duan Shaofu, director of the China Nonferrous Metals Industry Association's (CNMIA) copper department, stuck to his earlier prediction of the country's apparent copper consumption in 2011 breaking seven million tons for first time to hit 7.3 million tons - a year-on-year growth rate of 6 percent.
"China is pushing ahead with the expansion of its power grids, in particular in rural areas," Duan said, predicting that domestic demand will continue to run high into H1 next year at least.
China's largest grid operator, the government-owned State Grid Corp. of China (SGCC), expects to invest RMB 300 billion ($45.92 billion) in grid construction this year and consume 1.25 million tons of copper, Interfax previously reported.
Huatai Securities analyst Liu Minda was also upbeat on the demand side, but reduced his forecast that growth would exceed 10 percent down to 10 percent flat on the weak performance of China's household appliance market this year.
China's exports of copper products, meanwhile, are likely to see only a small impact from the weaknesses in the global economy, Duan said. As a net importer of copper, the country's exposure on this front is limited. Moreover, exports are mostly made up of copper tubes, an area in which China holds a competitive edge, Duan added.
China exported 348,198 tons of copper products in the first eight months this year, down 1.1 percent year-on-year, including 177,422 tons of copper tubes, according to customs data. Copper product exports in August, meanwhile, were 41,330 tons.
-KHM