SHANGHAI Chinas physical copper market remains
weak and robust import figures are obscuring a slowdown in real
business activity, market participants told AMM sister
publication Metal Bulletin.
Imports of unwrought and fabricated copper surged to a record
536,000 tonnes in January, a year-on-year increase of 53
But as economic indicators in China point to a slowdown in
manufacturing, traders highlighted low demand and an expanding
contango on the domestic market.
There is copper all over the market, but both traders and
downstream consumers are reluctant to take the cargoes,
one domestic copper trader told Metal Bulletin.
The spot copper discount enlarged to above 300 yuan ($49)
per tonne but its still hard to find buyers, he
The discount in spot prices to the Shanghai Futures Exchange
(SHFE) front-month contract would normally imply an immediate
surplus and weak immediate demand.
Underlining concerns about an economic slowdown in China, the
latest manufacturing purchasing managers index (PMI) fell
deeper into negative territory. London-based HSBC Holdings
Plcs preliminary PMI for February registered a
seven-month low of 48.3, down from 49.5 in January.
Import figures into China have long been dislocated from actual
physical demand because of imports undertaken in financing
But this may be particularly the case for January, as a credit
squeeze at the start of the year encourages alternative forms
Trading is active these days, and copper financing
business remains robust, one copper trader said,
Even though (regulators) have made efforts last year to
put more scrutiny on these deals, our business is still
Goldman Sachs Group Inc. estimates that inventories of refined
copper in China have risen by about 200,000 tonnes since the
start of the year, with bonded inventories up to 700,000 tonnes
from 550,000 tonnes and SHFE stocks rising to 180,000 tonnes
from 125,000 tonnes.
Over-importing reflects over-ordering under long-term
contracts (due to low long-term contract premiums) and
increased demand for Chinese Copper Financing Deals (CCFDs) as
A-list companies increased imports into bonded warehouses so
that they can qualify to do CCFDs in 2014, New York-based
Goldman Sachs said in a report Feb. 14.
Declining London Metal Exchange inventory reflects stocks
shifting off market rather than a deficit market, due to
financing deals and the impact of the new LME warehousing
rules, Goldman Sachs said.
Active copper financing also caused spread tightness, Goldman
Since we do not expect these deals to end anytime soon,
the LME spread tightness is very likely to persist, with risks
that spreads tighten further during the seasonally strong
period of demand in the second quarter, a Goldman Sachs
analyst said in the report.
The Shanghai copper spot premiums have moved to $170 to $180
per tonne after the Chinese New Year, after staying at $165 to
$175 per tonne in January.
A version of this article was first published in AMM sister
publication Metal Bulletin.