Copper Moves China Forward

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Global Trade, Non-ferrous Metals

I found this article based on a report by the Belgian bank Fortis in their Asian Metals Monthly Review  — interesting not so much for its predictions on copper, but rather their analysis of China and the wider impact that may have on metals prices in general.

For anyone interested in copper predictions, the report makes interesting reading, specifically  since it  analyzes the current trend for China to import copper concentrates and scrap rather than refined copper. While this will support copper prices generally, the move will take the direct stimulus from the copper wire-bar market and allow stocks of refined metal to rise, something that is already happening, which in turn will weigh down on prices. The report calls out the negative arbitrage between the LME and the Shanghai futures market where the former is some $800/mt higher than the latter, a reflection of the abundant metal supply in the domestic market and the affect of import/export duty changes imposed over the last 12 months.

US copper imports are down 29% in the first two months of this year, compared to the same period last year. While the reduction in direct US imports is not as great in absolute terms as that for China (the US is number two to China in consumption terms), it has been accompanied by a less well documented trend of the US becoming a surrogate copper consumer over the last 5-6 years as the electrical goods that were once made in the US have been made in China. The US still consumes as much copper, but now more is in the form of imported products than raw material. This could also be true for steel, aluminum, and many other metals. As the US consumer buys less this year and next, the knock on affect will be a subtle reduction in demand of many metals by manufacturers overseas.
Fortis suggest the Chinese economy will slow significantly after the Beijing Olympics due to a combination of government inspired credit tightening and increases in reserve requirements. This will bring about a deliberate reduction in the pace of China’s growth in the remaining years of this decade as the government’s priority becomes inflation and sustainable development. The affect on the wider metals markets will likely be similar to copper which could mean more stable and reasonable prices from the latter part of this year onwards.

–Stuart Burns

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