Column: The fall in copper prices attracts Chinese buyers in force
LONDON, Sept 27 (Reuters) – As the rest of the world worries about the recession, China is steadily increasing its imports of physical copper.
The country’s net call on refined copper from the rest of the world rose 9.8% in the first eight months of the year. Year-to-date volumes are the highest since 2020, when China imported a record amount of metal.
China is simultaneously increasing imports of copper scrap and mined concentrates, suggesting that the thirst for refined units is not due to a shortage of raw materials.
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The strong import flows defy both the general gloom surrounding China’s indebted real estate sector and the more specific issues at trading house Maike, which is one of China’s main copper import channels.
It’s clear that a major resupply exercise is underway, but is there something else at work as well?
China’s net refined copper imports stood at 2.31 million tonnes in the first eight months of this year, an increase of 200,000 tonnes from the same period of 2021.
However, this underestimates the scale of the buying frenzy that is currently unfolding. Imports were below year-earlier levels as recently as May. The pace accelerated sharply in June and reached 3.87 million tonnes at an annualized rate over the last three months.
Annual imports only exceeded this level in 2020, a year when the LME copper price dipped below $5,000 a ton as COVID-19 dampened manufacturing activity first in China. , then everywhere else.
Chinese buyers are now similarly benefiting from the steep fall in copper, which has fallen from over $10,000 a ton in March to $7,425 currently.
This is in many ways a natural turning point in the storage cycle.
The price of copper doubled between 2020 and 2021, causing such financial hardship for small buyers that Beijing released around 110,000 tons of the metal from the state stockpile.
If the government was forced to destock by extreme prices, chances are the entire national supply chain was doing the same.
IMPORTS OF WASTE AND CONCENTRATES UP
The replenishment momentum is also spilling over into copper commodity import channels.
Year-to-date copper scrap imports are up 8.2% year-on-year, building on the surge following its removal in 2020 from the list of banned scrap imports .
Import volumes of 1.19 million tonnes through August appear low compared to previous years, but what is now entering China is material of much higher purity, as required by regulatory reclassification of “waste ” to “resource”.
The United States has returned to the top supplier position, shipping 214,000 tons of recyclable copper to China so far this year, up 48% from 2021 rates.
It should be remembered that some of this material will go directly to manufacturers for direct smelting into their products. Higher scrap flows should logically mean less need for pure refined metal.
Not now though.
Similarly, robust import flows of mined concentrates – up 9.1% year-on-year through August – enabled Chinese smelters to increase production by 2.6% to now this year.
Nor did it lessen the metal’s appeal to the rest of the world.
GREEN DEMAND DRIVER
China’s thirst for copper imports seems unsatisfied.
The rise in imports between June and August had no impact on stocks on the Shanghai Futures Exchange, which remain extremely low at 36,897 tonnes. The Shanghai futures curve is therefore in lag until June 2023.
The Yangshan copper premium, a closely watched signal of import demand, is currently valued by Shanghai Metal Market at $98.0 per tonne against LME cash, down from a March low of $6.50 per tonne. tonne.
All of this raises the question of whether the current surge in imports is more than just a restocking impulse.
A partial answer seems to be that while China’s old economy is collapsing, its new economy is picking up the slack in terms of copper usage.
Major manufacturing indices indicate that Chinese factory activity has contracted due to continued shutdowns and weakness in the residential real estate sector.
Construction has been a mainstay of China’s economic growth in recent years and is an important driver of copper demand, especially in the later stages of project development when wiring and appliances are being installed.
It’s impossible for copper to escape the weakness emanating from the real estate sector, but the new economy, in the form of electric vehicles and grid spending, offers a powerful offset.
Sales of new energy vehicles doubled year-on-year in August and are driving a broader recovery in auto production in China. Read more
Network spending, which languished in the second half of the past decade, is accelerating again, rising 11% year-on-year in the first eight months of 2022, according to Citi. (“Network Spending in China Has Another Solid Month”, September 23, 2022)
Goldman Sachs analysts believe that this new green demand fully offsets the reduction in levies from old economy drivers such as real estate. (“Copper: tightens in slowdown”, August 22, 2022)
Beijing is aiming for 25% penetration of electric vehicles by 2025 and has pledged to double grid spending over the next 5 years.
Signaling increased public investment in decarbonization is a key reason Chinese copper buyers feel confident about restocking physical units at current price levels.
The use of copper in the energy transition, a promise for the future for the rest of the world, is taking shape in China.
The opinions expressed here are those of the author, columnist for Reuters
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Editing by David Evans
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