China’s buying spree absorbs world’s excess copper

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    By Andy Home

    LONDON- The refined copper market is on course to register a supply-demand shortfall this year, according to the International Copper Study Group (ICSG).

    The forecast deficit is a small one – just 52,000 tons in a 24-million ton global market – but it’s a dramatic change from the group’s forecast this time last year, when it expected a chunky 280,000-ton surplus.

    And that was before COVID-19, which has since devastated demand with the ICSG estimating slumps of 8 percent in the European Union, 6 percent in the United States and “significant reductions in India, Japan and other Asean countries”.

    So how come the market is still running short of metal?

    The first part of the answer is that global copper production has also been upended by the fatal coronavirus.

    The second is that China is on a massive buying spree, imports running at unprecedented levels.

    That’s a positive for the copper price, which has this week surged to a fresh year-to-date high of $6,985 per ton on the London market.

    But the impact on any market balance calculation comes with a sting in its tail.

    Global copper mine production will fall by 1.5 percent this year, the ICSG forecasts. It will be the second consecutive year of lower output after a 0.2 percent decline in 2019.

    At its last meeting in October 2019, the ICSG anticipated a 2 percent increase in mined copper production this year but has slashed that forecast by 700,000 tons to reflect lockdown losses in key producer countries such as Peru.

    The group has also cut 850,000 tons of refined metal from its last forecast. Global production will still grow this year, but only by 1.6 percent compared with a previous call of 4.0 percent.

    Global secondary production, which uses scrap as a feed, will be particularly hard hit, sliding 5.5 percent this year as scrap collection, processing and logistics networks collapse under national lockdowns.

    Much of this recycling capacity is located in China, where confusion over import rules has compounded logistical challenges.

    “China’s contribution to world (output) growth will be at a lower rate than initially expected,” the ICSG said.

    China’s smelters are struggling to catch up with an extraordinary rebound in manufacturing activity, fuelled by government stimulus flowing down the metals-intensive channels of construction and infrastructure.

    Supply-chain stresses and an open arbitrage window have occasioned an unprecedented import surge.

    China imported 3.55 million tons of refined copper in the first nine months of this year. That’s already more than last year’s tally and amounts to an extra million tons of metal.

    It’s worth considering what the copper price would look like if that amount of surplus metal hadn’t gone to China but had instead been dumped into London Metal Exchange and CME warehouses.

    Those stellar imports, however, distort the statistical picture. The ICSG uses them, together with domestic production and changes in stocks held by the Shanghai Futures Exchange, to calculate “apparent” usage. The mathematics assume that imports are being used to make copper products.

    This year’s import surge has caused China’s “apparent” copper usage to jump to the point that it almost totally offsets the slump everywhere else. Hence the ICSG’s assessment that global demand will be stable this year relative to last.