Is China's SRB Set to Raise Copper Purchases Further?

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When we last reported on copper earlier this month we covered the wide range of views as to where the price was going and explored some of the drivers to that price, specifically stock levels, availability of scrap and the actions of the Chinese SRB (State Reserves Bureau). Of those factors, the actions of the SRB appear to have the greatest impact, at least in the short term.  If rumors are to be believed, maybe into the medium term too. The market had expected, largely because this is what the SRB had said, that they would take advantage of the low price to buy some 300,000 tons of primary copper during late 2008 and early 2009. This they have largely done mopping up a copper market surplus of about 218,000 tons in 2008, most of which arose in the 4th quarter according to a Standard Bank report. The surplus for 2009 is estimated by Standard Bank at 255,000 tons and reports are beginning to circulate that the SRB intends to raise their total purchases to 1 million tons. If they do this over the balance of this year, rather than the next 2-3 years, it will put the market in deficit with corresponding implications for the copper price this year.The questions are how accurate are the rumors of the SRB raising the target to 1m tons and if they are correct how sensitive is the SRB to the purchase price? If it increases too fast too soon will they hold off and wait for a dip? Whether the SRB’s objective is to support the copper price or to take advantage of low prices to build a low cost strategic stockpile, a significant rise in the price and a drop in stocks would suggest they will stop further buying. We will continue to report developments on the SRB’s intentions and would suggest buyers sensitive to the copper price do the same. If the 1m ton target becomes official it will put a floor under the copper price at current levels rather than us seeing the fall back to the low $3000’s as was widely expected once the 300,000 tons of SRB purchases was completed. For the time being, the wider market is interpreting the strength of Chinese buying as being the result of a return to strong growth in China, for which we have very little evidence at the moment.–Stuart Burns

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