Shanghai - China is facing an unprecedented decline in refined copper imports as a slowing economy erodes demand in the world’s biggest consumer, according to the chief executive of one of the country’s largest buyers.
Shipments will shrink 10 percent in 2016 as consumption weakens, domestic supplies increase and less metal is used for collateral in financing, Stephen Huang, chief executive officer of trading house Arc Resources, said in an interview in Shanghai. Purchases have already dropped almost 4 percent to 2.55 million metric tons in the first nine months of 2015 from a year earlier, customs data show.
“We’ll see a substantial change in sourcing structure next year as users buy more from domestic producers and less from foreign suppliers,” said Huang from his office in Lujiazui, the city’s financial hub, on November 11. The company handles about one tenth of the country’s copper imports, he said.
The world’s second-largest economy is facing the slowest annual expansion in a quarter of a century as President Xi Jinping steers the country to a growth model based on consumer demand and services rather than state investment spending. Copper used in everything from power generators to wiring in homes has plunged 24 percent this year to the lowest since 2009 as China’s economy weakened.
Growth peaks
China’s copper demand growth has peaked and rates of expansion will probably slow to about 2 percent annually in the next few years, Huang said. Goldman Sachs Group Inc. in September forecast that copper demand in China will rise by 3 percent a year through 2020, slowing from gains of about 6 percent last year and 11 percent in 2013. Only a major recovery in Chinese demand will be enough to balance the global market because metal supply generally continues to grow, the bank said in a report dated Nov. 12.
Huang made his comments ahead of Asia Copper Week in Shanghai, where producers, traders and buyers gather to exchange views and conduct price negotiations. Arc Resources was established in 2010 and is based in the city. Sales last year were $7.9 billion and $9.3 billion in 2013, according to the company.
Refined copper production in China is climbing as the country processes more foreign ore amid high treatment fees and a global glut. Output rose 6.8 percent in the first 10 months from a year earlier and totaled 6.5 million tons, according to the National Bureau of Statistics. That’s sucked in more foreign ore and concentrates.
Copper’s use as collateral for financing has also diminished after the fraud investigation last year at the port of Qingdao, said Huang, who has worked in the metals industry since the late 1980’s.
Codelco premium
The drop in purchases means that Chinese traders will probably import less copper next year under long-term contracts, Huang said. The top suppliers charge buyers a premium above London Metal Exchange prices and Chile’s Codelco, the biggest producer, is expected to disclose its fee during the industry meeting in Shanghai. Japan’s Pan Pacific Copper has already agreed an 8.7 percent cut to $105 a ton.
Even that may be too much for Huang, who thinks a three- digit premium is unjustified. While Codelco’s fee was $133 a ton for 2015, the spot premium in the bonded warehouse zone in Shanghai has averaged $77 this year after slumping 40 percent in the past two months. Helmut Arbert, a representative for Codelco in China, declined to comment in a text message on November 12.
BLOOMBERG