SHANGHAI, Jul. 16 (SMM) –
According to China Customs, China's scrap copper imports during June were 370,000 mt, down sharply by 12.71% MoM and 12.27% YoY. The sharp drop in scrap copper imports was in line with SMM's expectations now that importers only replenished scrap copper stocks as needed given the unfavorable SHFE/LME copper price ratio and copper's relatively high absolute prices. Although an import window opened in May and propelled importers to increase purchase volumes, these goods will only arrive at Chinese ports during July. In SMM's view, since the SHFE/LME copper price ratio rose significantly in May and since falling copper prices also reduced the risk of purchase, domestic scrap copper importers began to gradually increase orders. In this context, SMM believes China's scrap copper imports will rebound slightly during July and August, helping ease domestic supply shortages. Since imports will not completely ease this year's shortages, the price gap between scrap and refined copper should remain between RMB 800-1,200/mt for the foreseeable future.
Unwrought Copper and Copper Semis
According to China Customs, China's imports of unwrought copper and copper semis in June were 346,000 mt, down 74,000 mt from May, and the lowest level since September 2011. Based on SMM estimates, China's refined copper imports during June should be around 250,000 mt, down around 50,000 mt from May. Since the SHFE/LME copper price ratio improved significantly during June, the monthly average loss for copper importers fell to RMB 676/mt, down sharply from May's RMB 2,352/mt, with imported copper even providing a slight profit during some days during June. As a result, cargo-holders who can secure Letter of Credits (L/Cs) were able to apply directly for customs clearances for warrants at bonded warehouses and then sell in domestic markets for cash. According to a recent SMM survey, spot premiums for goods with warrants were down slightly by USD 10/mt compared with those for goods with Bills of Lading (B/Ls) during the time the SHFE/LME copper price ratio was favorable for imports. Demand for B/Ls during June thus turned into that for warrants at bonded warehouses, which, however, cannot be reflected in China Customs data and caused a drop in refined copper imports. The recent interest rate cut by China's central bank has allowed borrowing costs to continue falling, which caused a wait-and-see posture among those companies which can only secure financing through B/Ls. In addition, as the RMB:USD exchange rate returned to around 6.3, market expectations of further RMB depreciation added to risks in financing costs for copper importers. China's domestic economic environment has not seen any noticeable improvement given weak global demand, but as China eases credit restrictions and liquidity, financing demand using imported copper will likely fall for the foreseeable future, driving down refined copper imports even further in July.