High Copper Output to Cap Copper Price Rebounds

SHANGHAI, Jan. 24 (SMM) – The positive impact brought by China's encouraging economic data last week has abated, and the preliminary HSBC China PMI due Thursday was already taken as a speculative tool in advance. This means there is limited upside room in copper prices given a lack of favorable news in the near future, but relatively ample cash flows at the beginning of the year should lend a strong support.

The NBS announced on January 22 that China's refined copper output was 580,000 mt in December, up 22.4% YoY, and also well above 531,000 mt in November. China's refined copper output totaled 6.06 million mt for the whole year of 2012, and saw a YoY growth of 10.8%.

Affected by this, SHFE copper prices experienced considerable changes January 22 morning. But for global easing measures, the slack copper fundamentals side could have sent LME copper down below USD 8,000/mt.

Increasing copper output in China is generally considered as favorable for demand owing to copper resource shortages there, but things have changed at present. SMM survey revealed that TC/RC for copper concentrate has been moving higher since 4Q 2012, stimulating Chinese copper smelters to step up production. Therefore, China's copper concentrate imports climbed to 935,000 mt in December, up from the level above 700,000 mt in September.

However, downstream demand has not been seen to improve appreciably as around 70% of Chinese wire and cable producers, which consume 50% of domestic copper, are pessimistic over their January orders based on SMM survey. That, combined with an invisible copper price trend, has depressed downstream producers' interest in replenishing copper stocks.

Aside from high domestic copper output, high copper stocks in China can not be neglected either. Copper stocks at Chinese bonded areas now increased nearly three times its level of 300,000 mt at the beginning of 2012. China's refined copper imports were low in December but recorded a historical high of 3.40 million mt for the whole year of 2012.

Worrying copper fundamentals side and debt crisis in the US and Europe will restrict upward room in copper prices, with SHFE copper prices expected to suffer considerable pressure at RMB 59,000/mt for the foreseeable future.