China Copper Fabricators Cut Output On Power Limits; Prices Unaffected S/T

SHANGHAI, Aug. 26 -- Copper fabricators in China's Zhejiang and Jiangsu provinces are being forced to cut production for the next few months after local governments ordered rationing of electricity use in response to Beijing's call to conserve energy and reduce emissions, industry participants said Thursday.

While the immediate impact on copper's supply and demand could be limited, given the current oversupply in the nation's fabricated copper products market, it may cause a short-term accumulation of refined copper inventory and will ultimately drag on demand for the refined metal if the power rationing is extended to a longer period in those regions, analysts said.

An official from a copper wire maker in Zhejiang province, which accounts for 20% of China's total output of fabricated copper products, said his company has been ordered by the local government to limit their use of electricity since the beginning of August and has since suffered a production cut.

"Current operation rates are just 60%, and we expect output to decline by one-third as the electricity restriction won't end until the end of December," he said, adding his company has an annual capacity of 80,000 tons of copper wire.

"We've also been asked to cut use of electricity since the beginning of summer and our output is certainly affected," said an official from a large copper rod maker in Jiangsu province, declining to specify the amount of lost production involved.

Another Zhejiang-based copper wire maker also reported limits on power usage ordered by the local government, according to a company official.

"This year is especially strict, and it will probably last longer--at least until the end of October--as the restriction is aimed at meeting the central government's call to save energy and reduce emissions."

Any decline in fabricating production may mean less buying of the manufacturing material, refined copper, which signals a possible slowdown at Chinese copper smelters for the rest of the year, analysts said.

"If it's going to be a long-term battle on energy-saving and emission-reduction, the whole industry chain will be affected, and there'll be no exception to those smelters," said Che Hongyun, a senior analyst with Galaxy Securities Futures.

However, analysts said copper prices are unlikely to be affected in the short term as they are taking cues more from external factors such as macroeconomic data or currency movements because investors place importance on the strength and pace of the global economic recovery.

"We need to notice that the copper fabrication sector in Zhejiang and Jiangsu provinces only accounts for a small part of the entire nation's output, and therefore, the impact be quite limited," said Wang Zhouyi, a senior analyst with Shanghai Cifco Futures.

"Copper prices reflect more of their finance function than their metal function these days because a healthy economy guarantees robust demand for the industrial metal, and also because there's few fresh and significant cues in the supply-and-demand fundamentals," said Wang.

At midday, benchmark December copper on the Shanghai Futures Exchange was up 1.3% at CNY57,360/ton.