Copper Rally May Halt After China Buying, Sumitomo Mining Says

TOKYO, July 24 -- China's copper imports are slowing after record purchases, likely ending a 79 percent price rally this year, according to Sumitomo Metal Mining Co., Japan's second-largest smelter of the metal.

    "Excessive imports mean much of the purchased metal was just stored, raising the risk that they may sell it back to the market and depress prices," Koichi Kaku, general manager at the Tokyo-based company's copper and precious metals sales department, said. Imports may have exceeded manufacturing demand by as much as 1.3 million metric tons in the first half, he said.

    Copper is the best performer this year on the UBS Bloomberg Constant Maturity Commodity Index. China's imports in the six months ended June 30 soared 160 percent from a year earlier, boosted by stockpiling and a 4 trillion yuan ($585 billion) stimulus package. A drop in purchases could cap prices amid a global recession. The International Monetary Fund said July 8 the world economy will contract by 1.4 percent this year.

    "If shipments to China lose steam and domestic demand does not increase, Japanese smelters may further reduce production," said Manami Ono, analyst at Tokyo-based Okasan Securities Co.

    Copper for delivery in three months on the London Metal Exchange declined 0.7 percent to $5,490 a ton at 11:12 a.m. Tokyo time. The metal increased as much as 1.2 percent to $5,565 a ton yesterday, the highest since Oct. 14.

    Sumitomo Metal Mining has rallied 54 percent this year amid advancing commodity prices. The shares gained 3.8 percent to 1,452 yen at 11 a.m. on the Tokyo Stock Exchange.

    Economic Growth

    Chinese copper demand should be growing by 7 to 8 percent this year, or about 400,000 tons annually, in line with an expansion in gross domestic product, Kaku said in an interview. Imports of refined copper jumped 401 percent on year to a record 378,943 tons in June, bringing first-half purchases to 1.78 million tons. Of the total, metal for use in manufacturing may be as small as 500,000 tons, he said.

    "I don't think copper prices climbed because of a dramatic improvement in supply-demand conditions," Kaku said. "I'm skeptical about a strong recovery in the market."

    Copper exports by Sumitomo Metal Mining exceeded its domestic sales for the first time in the first half, led by Chinese demand, Kaku said. The company didn't ship the metal to China this month on the spot market because of a lack of demand, only supplying volumes committed under term contracts, he said.

    Production Cuts

    Sumitomo Metal Mining plans to maintain its copper production cut until the end of the year ending March 31, 2010 as domestic demand is slow to recover, Kaku said.

    "Domestic sales increased in April-June from the previous quarter, but the volume is still about 30 percent below the level we saw a year earlier," he said.

    Japan's copper demand may drop 20 percent from a year earlier to about 1 million tons, as consumption by cable and wire makers will decline amid a construction slump, Kaku said.

    Sumitomo Metal Mining plans to produce 401,000 tons of copper in the year to March 31, 11 percent below the capacity of its Toyo smelter in Ehime prefecture, western Japan. The plant will be shut for about a month from Sept. 17 for maintenance.

    Unless domestic demand improves, the company may increase shipments to other Asian markets such as Taiwan, Indonesia, Thailand, Malaysia and South Korea, as exports to China are set to decline in the second half, Kaku said.

    Japan's copper cathode exports to China surged to 219,850 tons in January to May from 86,186 tons a year earlier, according to data from the Finance Ministry. Total exports of the metal rose 87 percent to 323,587 tons in the period.

    (Source: Bloomberg)