SHANGHAI, Nov. 18 (SMM) - Copper prices unexpectedly gained ground in 2016. Is this a result of China’s supply-side reform? Did supply and demand balance change in copper market? Will price gains sustainable?
SMM did an interview at the 2016 SMM Summit to show views of some Chinese companies about copper prices.
SMM: China Smelters Purchase Team (CSPT) members announced in late 2015 to cut output by 350,000 tonnes in 2016. Did this show effect on the market? How do you think of China’s refined copper supply in 2017?
Yang Che, General Manager of Shanghai Xiangguang Metals: we did not have any plan for output cut last year, and have no idea about future output cut. Purchases for refined copper weakened this year, while those for copper ore increased. So we think output cut should focus on refined copper.
Wen Yue, Deputy general manager of Tongling Nonferrous Metals Group’s Shanghai Trade Investment Company: The execution of jointly output cut last year is efficient.
Tongling Nonferrous Metals Group’s copper output is expected to be about 1.20 million mt this year, down 100,000 mt from last year. China Customs data show refined copper imports in the first ten months of this year increased compared to the same period of last year. Domestic copper inventories fell, excluding those in bonded warehouses. Exports to bonded zone by Chinese smelters should fall this year from last year.
SMM: China’s refined copper imports for financing purpose shrank over recent years. How do you think of refined copper inventories in bonded warehouses?
Xiong Wanlong, general manager of Shanghai Jinghuicheng International Trade Company: Copper inventories in bonded warehouses are used as a tool whose value is decreasing. So bonded zone inventories will fall in the future. Import losses were 1-1.5% last week, but some importers still placed orders. Companies will show little interest in importing if they cannot at least break even. Once bonded zone inventories fall, copper price volatility will grow.
Yang Che, General Manager of Shanghai Xiangguang Metals: with high domestic copper prices due to expectations of yuan’s devaluation and strong domestic consumption, import premiums will rise if imports are profitable. If imports are unprofitable, import premiums will change with financing demand.
Copper inventories in bonded zone will fall in the future, but may increase in the next few months due to seasonal factor or sliding consumption from rising copper prices.
Wen Yue, Deputy general manager of Tongling Nonferrous Metals Group’s Shanghai Trade Investment Company: as a reservoir for imported copper, change in bonded zone inventories is subject to the SHFE/LME copper price ratio. Bonded zone inventories will fall if imports are profitable, while those will increase if imports are unprofitable. Copper consumption in global markets will also affect bonded zone inventories.
The declines in inflows of imported copper are due to strong consumption in European and US markets in 2016. Copper imports returned to normal, and bonded zone inventories are now at normal levels.
SMM: copper consumption topped market expectations this year. How electric wire & cable industry perform? The State Grid prefers to invest in ultra-high voltage and upgrading of rural power grid. Will this affect copper consumption? What’s the growth point and growth in consumption next year?
Cai Hao, General Manager Assistant of Far East Materials Exchange: The electric wire & cable industry was sluggish in H1 2016, but performed better than expected in H2 due to sharp growth in the property market. Distribution network, residential buildings, infrastructure construction and State Grid are major contributors of copper consumption.
Growth rate in investment by the State Grid may be low next year, but investment increase will be significant. The momentum will continue in the following 3-5 years. But if copper prices breach RMB 50,000/mt, many downstream buyers may use aluminum instead of copper, which will constrain copper price gains, Cai Hao added.
SMM: What’s the Outlook for Copper Prices Next Year?
Yang Che, General Manager of Shanghai Xiangguang Metals: global copper supply and demand was tightly balanced this year. Consumption will not be bad next year given relatively strong demand and positive macroeconomic front, but growth will not be high. Copper prices will maintain upward momentum. But if inflation is high, interest rate and easy monetary policies may be affected. And this will give some negative effect on copper.
Cai Hao, General Manager Assistant of Far East Materials Exchange: US dollar will strengthen after Trump takes office, and this will weigh on LME copper. Real enterprises are advised to avoid market risks.
Xiong Wanlong, general manager of Shanghai Jinghuicheng International Trade Company: If Trump pushes stimulus measures after taking office, copper prices may have large room to rise.
Wen Yue, Deputy general manager of Tongling Nonferrous Metals Group’s Shanghai Trade Investment Company: I think copper prices will edge up in the medium-term, and fluctuate widely next year. US presidential election ended, but California considers leaving US. When coupled with Italian constitutional referendum and general elections in European countries, global economy will see turmoil. This will also affect commodity market. Copper prices will fluctuate in wide range.
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