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How will China's copper consumption finish this year?

Luvata poll results commentary


  • 8% said up from last year
  • 84% said same as last year
  • 8% said less than last year

Poll question and commentary from Harpreet Bhal, Correspondent Reuters News

Given that China is a major player in the international copper market, accounting for around 40 percent of global refined demand, it is hardly surprising that questions about the country's copper usage is a much talked-about topic. 

As consumption in mature markets slowed over the years, China's growth trajectory meant it was best placed to become a major copper buyer. With its surge to become the world's second biggest economy so too came a hunger for raw materials to power that growth. 

So entrenched is China's hold on the copper market that a bond default of a domestic company in March sent fears through the international market that a developing credit crisis could spark a mass unwinding of copper financing deals which have fuelled much of the country's recent import appetite. 

With the fears came panic-selling of copper futures on the London Metal Exchange, with prices dropping 8 percent in just three days.

So what can we expect from China's appetite for the "red metal" this year?  

Bright Spots

Some bright spots have started to emerge from China, helping fuel a bullish outlook for demand. 

At the moment the copper market appears to be getting a boost from seasonally-strong second quarter Chinese demand. Helping cement this view are signs that economic growth seems to be on the mend. China's factories posted their best performance in five months in May, boosting some optimism about the country's economic recovery. 

Meanwhile, falling copper stocks in China indicate demand remains healthy. Shanghai Futures Exchange inventories are at their lowest level since 2011 and estimates are that Chinese bonded stock levels were also diminishing. 

According to Reuters calculations, China's implied consumption surged a third from a year earlier in April, and industry sources say some of this is down to dwindling domestic stocks. 

Turning to copper financing deals, indications are that these deals are likely to persist, albeit at a smaller scale than previously thought, suggesting copper consumption for financing purposes could remain as a feature of the market for some time to come.  

Concerns Remain

The bulls may have some reasons to cheer but there remains significant concerns that could put the brakes on China’s copper demand growth. 

A big worry for the market is China's property sector slowdown. Slowing sales and climbing borrowing costs in recent months have tarnish the outlook for copper as roughly 60 percent of the metal's usage comes from the real-estate sector. 

Official figures indicate home price growth in the country slowed to a near one-year low in April, raising fears of a downturn in the sector, which has become a drag on the broader economy.

And the broader economy is already showing signs of a slowdown. According to a Reuters poll, the country's gross domestic product is likely to grow 7.3 percent in 2014, a reading that is lower than 7.7 percent in 2013. While such growth rates would be the envy of many struggling economies, the forecast is unwelcome news for China as it could mark the weakest economic showing in 24 years.


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