Copper Stockpiles Dropping 50% in China May Spur Imports
Copper stockpiles in China, the world’s biggest consumer of the metal, may have dropped 50 percent in the past two months, potentially spurring more imports and higher prices.
Inventories in bonded warehouses, used to store shipments before duties are paid, may have declined to about 300,000 metric tons, according to estimates from traders and analysts in China including Shanghai East Asia Futures Co. The warehouses, whose holdings aren’t disclosed, contained about 600,000 tons at the end of March, according to Standard Bank Plc.
Increased shipments into China, which represents about 40 percent of global demand, may mean a rebound in prices that fell 9.8 percent from a record in February. Goldman Sachs Group Inc. anticipates copper trading at an all-time high of $11,000 a ton in 12 months as mining companies fail to keep pace with demand.
“Metal has been leaving the bonded warehouses at quite a steady pace because it is the peak-demand season,” said Jia Zheng, a trader at Shanghai East Asia. “China is still growing, which is keeping demand robust.”
Three-month futures on the London Metal Exchange peaked at $10,190 per ton on Feb. 15, before tumbling on concern that global economic growth may be slowing. The metal, used in pipes and wires, traded at $9,184 a ton at 11:31 a.m. in London.
Higher prices would benefit Phoenix, Arizona-based Freeport-McMoRan Copper & Gold Inc., Chile’s state-owned Codelco, and Australia’s BHP Billiton Ltd., the top three producers last year, according to London-based researcher CRU.
China’s policy makers have been raising interest rates and ordering banks to set aside more cash to curb inflation that rose 5.5 percent in May, the fastest pace since 2008. Data this week also showed industrial production gained 13.3 percent in May, faster than forecast. The World Bank predicts China’s economy to expand 9.3 percent in 2011.
“Demand has definitely picked up,” said Che Hongyun, deputy director of research at Galaxy Futures Co., who also estimated that holdings in bonded warehouses have dropped to about 300,000 tons over the past two months.
The amount of copper held in warehouses monitored by the Shanghai Futures Exchange, fell 53 percent from this year’s high on March 17 to 83,275 tons last week.
Demand in China last month “was likely being met largely out of inventory, which drew massively,” Goldman analysts Allison Nathan and Jeffrey Currie wrote in a June 10 report. The report stuck with a 12-month price forecast of $11,000.
Copper stored in bonded warehouses has fallen about 150,000 tons in the past two months, Macquarie Group Ltd. said in a June 6 report. The bank had estimated the stockpiles were 550,000 tons on April 18.
Barclays Capital analyst Gayle Berry also said bonded holdings have dropped and forecast an increase in imports, according to a June 3 report. The Chinese market “is awakening from the destocking cycle that lasted nine months,” Nicholas Snowdon, an analyst at Barclays Capital, said June 9.
China’s copper-products output was 979,000 tons last month, 20 percent more than a year earlier, according to data from the country’s statistics bureau. Imports of copper and copper products were 254,738 tons last month, 36 percent lower than a year earlier, according to data June 13.
The “latest numbers from China show that the country is drawing down its domestic inventories rapidly,” Tobias Merath, the Zurich-based head of global commodity research at Credit Suisse AG, wrote in a note yesterday. “China will have to step up its imports in the coming months.”
Near-term copper supplies in China have been more expensive than longer-dated contracts since April, suggesting increasing demand or tighter short-term availability. Spot copper in Shanghai’s Changjiang, the biggest cash market, was 740 yuan a ton more than futures today.
“Downstream demand is steady,” said Li Ye, an analyst at Minmetals Starfutures Co., referring to manufacturers that use copper to make products. “Traders have little problem finding buyers for metal once it leaves the warehouse.”
China’s copper imports have fallen as local output has risen and prices overseas have been more expensive, making imports unprofitable for traders who seek to exploit price gaps between markets. Refined-copper output in China hit a record 470,000 tons in March and was 439,000 tons in May.
Copper in London has traded at a premium to futures in China, falling 2.3 percent between April 1 and May 31 compared with the 3 percent drop in Shanghai, where prices include a 17 percent value-added tax. Copper for August delivery on the Shanghai Futures Exchange gained 1.3 percent to 68,610 yuan ($10,584) a ton today.
The International Copper Study Group has forecast a 377,000-ton global shortage this year. High prices will last “a substantial amount of years” on demand from China, Diego Hernandez, Codelco’s chief executive officer, said June 8.
–Editors: Jake Lloyd-Smith, Richard Dobson
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June 15, 2011, 7:20 AM EDT