Molten Copper Sascha Schuermann/Getty Images

Copper's Scorching Rally May Hit Roadblock as Imports Drop

China's ramped up copper production could end our hopes of a Copper export boom.

Copper's searing rally in November could hit a roadblock as China's imports of the metal shrink. The world's biggest consumer is making more copper domestically than ever before, using supplies of foreign ore concentrate, which is curbing demand for the refined metal.

Overseas purchases of refined copper plunged to the lowest level in more than three years in October, contracting 45% from a year earlier, customs data showed Friday. Shipments in the past four months are a quarter below the same period last year. Domestic smelters, meanwhile, boosted output by 8% to a record in the first 10 months as purchases of foreign concentrate expanded 31%.

"Global mine supplies are ample and Chinese refiners are making good profits, so it makes sense for them to import more," according to Zhu Yi, an analyst with Bloomberg Intelligence in Hong Kong. "The trend may continue for a while as long as margins stay favorable."

Pan Pacific Copper Co., Japan's biggest producer, sees the threat of a steel-type glut for copper emerging in China as capacity expands, and says the key to mitigating that lies with how the government and existing smelters help newcomers understand how rapid expansion may hurt industry profitability.

The global market is adjusting to the change in trade patterns, which favors shippers of raw material to China over suppliers of metal. Future ore imports will depend on how much profit Chinese processors can reap from the treatment and refining fees they negotiate with suppliers.

While a surge in mine output earlier this year helped push up treatment fees to the highest since February 2015, the charges have since eased on signs that supply growth is slowing. Jiangxi Copper Co., China's top producer, had to agree to a 5% cut in fees for next year in a benchmark industry deal.

CRU Group expects the country's ore imports to continue rising. Purchases will increase more than 50% through 2020 from levels in 2014 as more than two thirds of new smelting capacity globally is brought online in China in the next four years, according to Chunlan Li, a Beijing-based analyst. The nation's capacity is already the world's largest.

The local expansion is accompanied by rising investment in overseas mines as part of a strategy to secure long-term supplies. Ore imports from Peru surged 75% to 3.47 million tons in the first 10 months as Chinese companies shipped material from projects they'd invested in. Purchases from Chile were up 33% at 3.78 million tons. Mongolia supplied 1.27 million tons.

The shift toward ore imports is the "most important trend for China's copper trade this year," said Fu Xiao, London-based head of commodity strategy at Bank of China International, adding the trend may reverse only after 2018 when ore supply may tighten.

Copper has surged by 23% this month, the most in more than a decade, fueled by a recovery in global manufacturing, President-elect Donald Trump's pledge to spend more on infrastructure and prospects for stable growth in China, the top consumer. Copper traded at $5,961 a ton on the London Metal Exchange on Monday, heading for the highest close since June last year.

The advance is "ahead of fundamentals" and driven more by bullish sentiment across commodities, said Zhu from Bloomberg Intelligence. China's declining imports of refined copper will curb the rally's upside, she said.

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