SHANGHAI, May 23 (SMM) – Reduced supplies accounted for recent declines in copper inventories in China, SMM believes.
Copper inventories across the Shanghai Futures Exchange-approved warehouses have been on the decline since the start of April, falling for seven consecutive weeks as of Friday May 17 and losing a total of 73,000 mt, SMM data showed.
Many domestic copper smelters conducted maintenance in April-May, impacting close to 140,000 mt of production, showed an SMM survey. Output at smelters, including Shandong Jinsheng, Chifeng Jinfeng and Guangxi Nanguo, shrank due to other factors. A closed arbitrage window also deterred seaborne materials from expanding supply.
Meanwhile, consumption did not come in as strong as previously hoped. An SMM survey showed that the average operating rate across Chinese manufacturers of copper products dropped 4.89 percentage points year on year to stand at 79.16% in April.
Major consumers of copper did not perform better. Year-to-date power investment declined for a third straight month in April, with the China Electricity Council reporting that realised investment in power grid projects in the first four months of 2019 dropped 19.1% year on year to stand at 80.3 billion yuan.
Data for property completion and auto sales were also disappointing. Power, property and auto sectors account for close to 70% of copper consumption.
The Chinese government’s tighter grip over waste imports and lower copper cathode prices narrowed the price spread between copper cathode and copper scrap, driving consumers to copper cathode and lowering inventories.
Smelters will recover from maintenance in June, while the reopening of an arbitrage window will prompt importers to move their cargoes to domestic markets. Consumption will weaken as a low season arrives.
Those developments will likely grow copper inventories, but tight copper scrap supplies remain a driver to copper cathode consumption.