China’s copper imports may plunge 64% in second half

Production and Markets

Copper imports by China may plunge 64% in the second half after record shipments this year led to excess stocks, UBS AG said.

China, the world’s largest consumer of the metal, may cut refined copper imports to around 100,000t/mth in July to December, from an average of 280,000t/mth in the first five months, UBS analysts led by Peter Hickson said in an e- mailed report dated July 6.

There are "clear indications that China is now overstocked" as the Strategic Reserve Bureau is offering up to 100,000t of copper to the market and traders are preparing for exports of the metal, the UBS report said.

Chinese imports "couldn’t decrease so sharply in the second half," Yang Gang, a trader at LG International Corp, said from Shanghai. Many long-term contracts have been booked and importing copper as a way to obtain finance is very active too, he said, referring to the credit terms traders can obtain from banks.

Copper, used in construction and power grids, has dropped 9%  from the year’s high of US$5,388/t on the London Metal Exchange on concern that China may slow purchases.

The country’s record shipments lifted prices 60% this year, closing the gap between London and Shanghai rates and making it unprofitable to import the metal into China.

UBS estimated that China may have stockpiled 500,000 to 700,000t of copper in excess of its industrial needs in the first quarter, 300,000t of which "is apparently destined for the Strategic Reserve Bureau."

This compares with Macquarie estimates of as much as 400,000t of total stockpiles, including a 50,000t increase in Reserve Bureau stock. Caijing magazine reported in June that China has bought 235,000t of copper for strategic reserves this year, citing Yu Dongming, a Chinese government official.

The copper market will "remain relatively tightly balanced in the foreseeable future," with China’s re-stocking having "prevented the accumulation of a sizeable surplus in reported inventories," the UBS report said. Copper inventories monitored by the LME dropped 22% this year.

(Bloomberg, July 7)