Chinese fundamentals for copper demand seen strong
Reuters reported that Chinese fundamental demand for copper is growing at a faster than expected rate and should underpin higher than consensus prices in 2010 and 2011.
Analysts Mr John Redstone and Mr John Hughes said that copper stockpiles in China are declining swiftly and that many in the market are wrong in thinking that speculation, rather than fundamental demand has underpinned imports of copper into China.
They said that fundamental demand for copper in China far exceeds general expectations, disagreeing with concerns that the country is awash with hidden metal inventory held by both speculators and metals consumers. Almost all of the hypothesized excess copper inventories are rumored, unsubstantiated, based on speculation or anecdotal in nature.
Instead, they point to data showing accelerating production of Chinese copper semi fabricated products which is the main use for copper in China along with Chinese domestic copper prices that are 5% to 10% higher than current London prices as reasons to suspect continued strong demand. They predict the red metal seen as a proxy for economic growth should average USD 3.50 per pound this year and rise to USD 4.00 per pound in 2011.
A January poll by Reuters, forecast copper averaging USD 3.21 per pound in 2010 and USD 3.40 in 2011, based on the median of a survey of about 50 analysts.
The metal rose by 140% during 2009, recovering from the 2008 metals crash on the back of a recovering economy, as well as by Chinese purchases from both speculators and consumers who wanted to build stockpiles of the metal while prices were still low. With copper higher, many now expect a period of destocking or burning through those inventories.
While Mr Hughes and Mr Redstone concede that Chinese imports will cool somewhat this year they expect net refined copper imports to fall to 190,000 tonnes from 260,000 tonnes in 2009, they said that is in part due to an increase in availability of recycled scrap imports this year, rather than a decline in demand.
They said that although we concede to some overbuying of copper by the Chinese last year, we completely disagree with the consensus view that Chinese copper imports will collapse this year. They added that copper inventories in China including unreported holdings have been declining since September 2009, which will force Chinese copper consumers to buy from London Metal Exchange warehouses, thus preventing an excessive buildup of LME inventory. In fact, they expect LME inventories to decline in the second quarter of 2010.
(Sourced from Reuters)
