China’s copper buyers make cautious return after prices slump
China’s copper market is showing a tentative improvement after a months-long slump in demand that stunned bullish investors and dragged prices down from a record high.
While there’s no major turnaround so far, analysts and traders in China say that buyers in the world’s biggest copper market are starting to dip in again after prices crashed from above $11,000 a ton in May to below $9,000 this week.
“We’re still subscribing to the view that the weakness in the second quarter was due to a delay in demand because there was a partial buyers’ strike,” said Robert Edwards, principal analyst at CRU Group. But he cautioned that market metrics still don’t point to a large-scale comeback.
The copper world is closely watching developments in China after the country’s feeble consumption helped unravel a powerful first-half rally.
Money managers have closed out more than $20 billion in bullish copper bets since mid-May, as worries over an underperforming Chinese market forced a retreat.
The key question now is whether demand was only deferred from the first half as buyers waited for prices to fall from excessive levels.
If that’s the case, the current flickers of activity might suggest that copper on the London Metal Exchange has found a floor around $9,000, and that the market will reboot after the typically quiet summer period.
Copper rose 1.6% to $9,116 a ton on the LME as of 11:40 a.m. in Shanghai, heading for its biggest one-day gain in four weeks. Other metals were also up, with aluminum climbing 1.4% and tin surging by 4%.
“Current price levels actually better reflect domestic fundamentals,” said Xiao Jing, chief nonferrous metals analyst at SDIC Essence Futures Co. “Demand could slowly come back with a continued decrease in inventory levels.”
Hopeful signs include rising import premiums, a modest drawdown in stockpiles, and a tick-up in output rates at copper processing plants.
The so-called Yangshan premium — a measure of import demand — has reached a three-month high after a highly unusual dip into negative territory for most of May and June.
Grid spending
There are expectations that China’s power networks will make more purchases in the second half as well. State Grid Corp. of China — the world’s single biggest copper buyer — plans a 13% increase in spending this year.
Analysts also said the recent pick-up in demand could be related to tighter supply of scrap, an alternative source of raw material for plants that make copper wires and tubes.
The government is due to withdraw tax rebates on scrap processors, which is likely to curb availability and in turn boost demand for metal.
On the other hand, China’s broader economy is still struggling with weak confidence and a years-long real estate downturn, and investors have been broadly disappointed by the government’s measures to prop up growth. Factory activity shrank for a third straight month in July.
“Demand for the year is not lost yet,” CRU’s Edwards said. “Outside of real estate, things are still look pretty strong, including EVs and renewables, or even the more traditional consumer durables.”
SOURCE:mining.com
