Traders say Global Copper Market Set to Shake up as China Plans to Export its Stockpile

The stockpiles of copper in China are near record highs and analysts are of the opinion that the country may be about to shock the global copper market by unleashing its stockpiles onto the global market.

In the next few months they expect China to raise its copper exports – which are usually tiny, said four traders of copper, including two from state-owned Chinese smelters. In the first two months of 2016, China’s refined copper exports averaged less than 10,000 tonnes a month while it was around 17,000 a month in 2015.

China is the world’s largest consumer of copper and this is the time when traditionally China has the strongest period of demand for the metal. In this scenario producers and investors in the metal across the world would feel a major jolt if higher exports materialize from China.

This rise in exports of copper might be a further sign of its economy still struggling against headwinds. In the past couple of years, sectors like construction and manufacturing – which buy copper have been hit hard by the headwinds.

At a time when the country is already swimming in copper, demand for refined copper from the nation’s massive smelting sector has shifted due to slowing building construction and electronics manufacturing sectors.

Since copper forms the essential network of its infrastructure, carrying water, conducting electricity and comprising the circuits in its machines, the consumption of the metal by China has been a crucial measure of the country’s economic growth.

“The situation for copper smelters in China is probably the worst it has been in 20 years. But they won’t admit it. It wouldn’t surprise me in the least (if they start exporting),” a source at an Asian copper producer who did not want be named told CNBC.

Since China’s refined copper imports hit a record in 2015, an increase in Chinese exports would mark an abrupt turnaround in global copper trade flows.

Market sentiments have already been buoyed lately by a more than 10 percent rally in prices since mid-January and any exports could deliver a major psychological blow to it.

Questions would also be raised about decisions by the world’s top mining companies to dial up copper production on the assumption of strong long-term demand out of China by the outbound flow of metal.

Based on the fact that China would swallow just about any of the metal they could produce, copper producers around the world have opened new mines and increased production from existing ones in the past 20 years.

This trend was most evident between 2005 and 2015 when the Chinese government pushed more people to move from rural areas into the cities resulting in the massive commercial and residential development boom. There are 16 cities in China now that have more than 5 million residents.

However demand for new housing projects has plummeted as many buildings, particularly in secondary cities remain empty due to the faltering Chinese economy.

The usual seasonal uptick in copper demand in the second quarter is not likely to help China’s smelters due to the slumping consumption and the surging imports of 2015 and earlier this year.

According to estimates from He Xiaohui, an analyst at state-backed research firm Antaike, China may hold more than 1 million tonnes of refined copper stocks currently, including bonded stocks, exchange stocks and metal held by traders and smelters.

(Adapted from cnbc.com)



Categories: Economy & Finance, Uncategorized

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