Copper rally may halt on China, Sumitomo Mining says

China’s copper imports are slowing after record purchases, likely ending an 81% price rally this year, according to Sumitomo Metal Mining Co, Japan’s second-largest smelter of the metal.

"Excessive imports mean much of the purchased metal was just stored, raising the risk that they may sell it back to the market and depress prices," Koichi Kaku, general manager at the Tokyo-based company’s copper and precious metals sales department, said. Imports may have exceeded manufacturing demand by as much as 1.3Mt in the first half, he said.

Copper is the best performer this year on the UBS Bloomberg Constant Maturity Commodity Index. China’s imports in the six months ended June 30 soared 160% from a year earlier, boosted by stockpiling and a Yn4 trillion (US$585 billion) stimulus package. A drop in purchases could cap prices amid a global recession. The International Monetary Fund said on July 8 the world economy will contract by 1.4% this year.

"If shipments to China lose steam and domestic demand does not increase, Japanese smelters may further reduce production," said Manami Ono, analyst at Tokyo-based Okasan Securities Co.

Copper for delivery in three months on the London Metal Exchange lost as much as 1.4% to US$5,454.50/t before trading at US$5,550 at 5:25pm Tokyo time. Prices gained as much as 1.2% to US$5,565 yesterday, the highest since October 14.

Chinese copper demand should be growing by 7% to 8% this year, or about 400,000t annually, in line with an expansion in gross domestic product, Kaku said in an interview.

Imports of refined copper jumped 401% on year to a record 378,943t in June, bringing first-half purchases to 1.78Mt. Of the total, metal for use in manufacturing may be as small as 500,000t, he said.

"I don’t think copper prices climbed because of a dramatic improvement in supply-demand conditions," Kaku said. "I’m skeptical about a strong recovery in the market."

Copper exports by Sumitomo exceeded its domestic sales for the first time in the first half, led by Chinese demand, Kaku said. The company didn’t ship the metal to China this month on the spot market because of a lack of demand, only supplying volumes committed under term contracts, he said.

Sumitomo plans to maintain its copper production cut until the end of the year to March 31 2010 as domestic demand is slow to recover, Kaku said.

"Domestic sales increased in April-June from the previous quarter, but the volume is still about 30% below the level we saw a year earlier," he said.

Japan’s copper demand may drop 20% from a year earlier to about 1Mt, as consumption by cable and wire makers will decline amid a construction slump, Kaku said.

Sumitomo plans to produce 401,000t of copper in the year to March 31, 11% below the capacity of its Toyo smelter in Ehime prefecture, western Japan. The plant will be shut for about a month from September 17 for maintenance.

Unless domestic demand improves, the company may increase shipments to other Asian markets such as Taiwan, Indonesia, Thailand, Malaysia and South Korea, as exports to China are set to decline in the second half, Kaku said.

Japan’s copper cathode exports to China surged to 219,850t in January to May from 86,186t a year earlier, according to data from the Finance Ministry. Total exports of the metal rose 87% to 323,587t in the period.

(Bloomberg, July 24)