China Copper Smelters Export Metal Amid Weak Domestic Demand-Shanghai Metals Market

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China Copper Smelters Export Metal Amid Weak Domestic Demand

Industry News 01:24:39PM Feb 16, 2012 Source:SMM

Feb 15, 2012 SHANGHAI (Dow Jones)--Major Chinese copper smelters are exporting refined metal to other Asian countries as domestic demand in the world's largest copper consumer remains weak.

While smelters have exported only a small quantity so far, the market weakness indicated by the metal leaving China could weigh on London Metal Exchange copper prices, up 9.3% since the start of the year amid strong speculative interest.

Three-month LME copper, currently trading around $8,310 a metric ton, is still 18.4% below last February's record of $10,190/ton.

Major smelters, including Jiangxi Copper and Tongling Nonferrous Metals, are taking advantage of toll trading - importing raw materials and exporting finished goods - to ship refined copper overseas, smelting and trading sources said.

Toll trading qualifies for preferential tax treatment, such as exemptions from customs duty and value-added tax. Large copper smelters are usually allowed to export some of the refined products they produce every year under a quota system, industry participants said.

Tongling Nonferrous "has already exported a few thousand tons of refined copper and other smelters are also considering it because buying is really scarce in the domestic market," a manager at a major copper producer said.

Jiangxi Copper and Tongling Nonferrous Metals couldn't be reached for comment.

Physical demand has been thin in the domestic market since late last year, as reflected by the consistent price discount in the cash market to prices on the Shanghai Futures Exchange. This has been blamed on fabricators and downstream users holding back on restocking due to the uncertain economic environment.

"Using toll trade to export is one way for smelters to make money under such [weak market] circumstances," as there'll be no taxes involved, the smelter manager said.

At current prices, smelters would make around $200-$300/ton exporting copper, traders said.

Copper stocks at bonded warehouses rose to more than 350,000 tons last week from around 250,000 tons in early January, in another sign that domestic consumption is at odds with firm prices.

However, it is too early to conclude that Chinese demand will disappoint as it did last year, because the move is a short-term practice and the amount of copper exported so far is small, market participants said.

"I would expect 20,000 to 30,000 tons at most [in the first quarter]," said Li Yusheng, senior copper analyst at Beijing Antaike.

"Exports [so far this year] are also different from last year as pure re-export by trading houses isn't really happening now," a physical trader at a domestic firm said, adding that was a sign that trading houses hold a positive outlook for China's appetite going forward.

Analysts still expect China to post some growth in copper demand this year, despite the slow pace of monetary easing and the expiry of earlier supportive measures.

Beijing Antaike has predicted a demand growth of 6% this year, but that is slightly below Antaike's own original estimate of 6.4%.

"Without meaningful policy (easing), manufacturing activity is limited, and that would certainty put a lid on global copper prices going forward," said Antaike's Li.
 

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China Copper Smelters Export Metal Amid Weak Domestic Demand

Industry News 01:24:39PM Feb 16, 2012 Source:SMM

Feb 15, 2012 SHANGHAI (Dow Jones)--Major Chinese copper smelters are exporting refined metal to other Asian countries as domestic demand in the world's largest copper consumer remains weak.

While smelters have exported only a small quantity so far, the market weakness indicated by the metal leaving China could weigh on London Metal Exchange copper prices, up 9.3% since the start of the year amid strong speculative interest.

Three-month LME copper, currently trading around $8,310 a metric ton, is still 18.4% below last February's record of $10,190/ton.

Major smelters, including Jiangxi Copper and Tongling Nonferrous Metals, are taking advantage of toll trading - importing raw materials and exporting finished goods - to ship refined copper overseas, smelting and trading sources said.

Toll trading qualifies for preferential tax treatment, such as exemptions from customs duty and value-added tax. Large copper smelters are usually allowed to export some of the refined products they produce every year under a quota system, industry participants said.

Tongling Nonferrous "has already exported a few thousand tons of refined copper and other smelters are also considering it because buying is really scarce in the domestic market," a manager at a major copper producer said.

Jiangxi Copper and Tongling Nonferrous Metals couldn't be reached for comment.

Physical demand has been thin in the domestic market since late last year, as reflected by the consistent price discount in the cash market to prices on the Shanghai Futures Exchange. This has been blamed on fabricators and downstream users holding back on restocking due to the uncertain economic environment.

"Using toll trade to export is one way for smelters to make money under such [weak market] circumstances," as there'll be no taxes involved, the smelter manager said.

At current prices, smelters would make around $200-$300/ton exporting copper, traders said.

Copper stocks at bonded warehouses rose to more than 350,000 tons last week from around 250,000 tons in early January, in another sign that domestic consumption is at odds with firm prices.

However, it is too early to conclude that Chinese demand will disappoint as it did last year, because the move is a short-term practice and the amount of copper exported so far is small, market participants said.

"I would expect 20,000 to 30,000 tons at most [in the first quarter]," said Li Yusheng, senior copper analyst at Beijing Antaike.

"Exports [so far this year] are also different from last year as pure re-export by trading houses isn't really happening now," a physical trader at a domestic firm said, adding that was a sign that trading houses hold a positive outlook for China's appetite going forward.

Analysts still expect China to post some growth in copper demand this year, despite the slow pace of monetary easing and the expiry of earlier supportive measures.

Beijing Antaike has predicted a demand growth of 6% this year, but that is slightly below Antaike's own original estimate of 6.4%.

"Without meaningful policy (easing), manufacturing activity is limited, and that would certainty put a lid on global copper prices going forward," said Antaike's Li.