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China’s apparent consumption of refined copper has fallen steeply year-on-year so far in 2013. Are forecasts for growth of 5-6% for the full year still achievable? We think so, says Andrew Cole of Metal Bulletin Research.
China’s apparent consumption of refined copper has been a key factor in the market this year, as downward revisions to consensus expectations for economic growth have weighed on the outlook for copper usage. Metal Bulletin Research is not in the bear camp, however.
Although our calculations for apparent consumption suggest a year-on-year decline of 6.6% in the four months to April, that is an improvement on the -9.6% rate for the January-March period and the 9-10% contraction for January-February.
The negative growth rates largely reflect high import volumes in early 2012, but the effect of this will drop out of year-on-year comparisons as 2013 progresses.
Take May, for example. In addition to the net decline in SHFE stocks already reported for the month, if we assume lower production due to maintenance closures and scrap shortages, together with higher imports reflecting the drawdown of bonded inventories, we can then expect apparent consumption of about 760,000 tonnes during the month, compared with 731,000 tonnes in May 2012.
This would further reduce the year-to-date contraction to -4.4% for January-May. And with apparent copper consumption falling month-on-month in June and July 2012, we expect year-on-year comparisons to continue improving.
Therefore, our forecast for positive growth in China’s apparent copper consumption of 5.6% for the full year remains achievable, despite the deeply negative start to 2013.
This estimate allows for a seasonal slowdown in demand over the summer, but a relatively solid, though certainly not spectacular, rate of real copper usage over the rest of the year, underpinned by demand from major cablemakers and aided by scrap shortages.
We would also expect to see bonded warehouse inventories rebuild modestly in the second half of the year, although the government’s clampdown on excessive letter-of-credit financing activity, together with a focus on concentrate imports over cathode, should ensure the stock build-rate at bonded warehouses is not as fast as we have seen in previous years.
All other things being equal, such an outlook for Chinese copper demand is enough to keep the global market close to balance in 2013. The 61,000-tonne surplus that we forecast for the full year represents a negligible 0.3% of global consumption, which compares favourably with surplus/consumption ratios of 2-5% for aluminium, nickel and zinc.
This outlook is produced in partnership with Metal Bulletin Research. For more market analysis and forecasting, visit: www.metalbulletinresearch.com
Andrew Cole Senior base metals analyst, Metal Bulletin Research acole@metalbulletinresearch.com