China Demand to Drop as SRB Ends Purchases, Jiangxi Copper Says

BEIJING, June 19  -- China's copper demand may drop in the next quarter as the State Reserve Bureau will probably cease purchases and as consumption in the world's largest metals buyer weakens, a trader at Jiangxi Copper Co. said.

    Prices will decline in the next two to three months as Chinese imports fall, Zhao Mingwang, manager of futures trading at Jiangxi Copper Products Co., said in a phone interview. The unit of Jiangxi Copper, the nation's biggest maker of the metal, produces wires and rods.

    China's copper imports climbed for a fourth month to a record in May, fueling a 63 percent price rally this year. Falling exports and profits, overcapacity and rising unemployment are making it harder to revive economic growth in the world's third-largest economy, China's cabinet said June 17.

    "Demand is not as good as people had expected," Zhao said. "In the second half, the SRB is unlikely to buy more, so copper price fluctuations will solely rely on real demand. The third quarter will be a slow season, so we expect copper to fall."

    Futures in London traded at $4,981 a metric ton at 8:23 a.m. Beijing time. Prices dropped 0.4 percent to 39,230 yuan ($5,740) a ton in Shanghai trading yesterday.

    China's State Reserve Bureau, known as the SRB, contracted to take between 300,000 tons and 400,000 tons of refined copper from overseas this year, according to Macquarie Group Ltd.

    Stockpiling Targets

    "SRB's purchases are coming to an end," Jiangxi Copper's Zhao said. Prices have rallied and SRB has met its stockpiling target, he added, without elaborating.

    The bureau was probably building inventories after prices collapsed last year, analysts have said. The bureau didn't return a call for comment.

    Rising inventories in warehouses monitored by the Shanghai Futures Exchange is a sign of falling demand, Zhao said. The inventories grew by 15,167 tons to 60,647 tons as of June 12, exchange data showed.

    The Chinese government's policy to boost rural purchases of autos and home appliances has had a "positive" impact on copper demand, Zhao said. Still, that was only enough to compensate for a decrease in exports of products such as tubes, he said. Copper tubes are used in air-conditioners.

    China is spending 4 trillion yuan on a stimulus package to revive growth.

    "Even with the stimulus package, Chinese copper demand is unlikely to grow beyond 10 percent this year," Jiangxi's Zhao said. Annual demand has expanded between 10 percent and 20 percent in the past five years, he said.

    (Source: Bloomberg)