Copper producers in China, the world's largest importer of the metal,
have announced plans to export the red metal, a rare move aimed at
easing a shortage that has pushed prices higher.
Copper prices have risen recently after inventories of the metal outside
China fell to unusually low levels, prompting a squeeze at the London
Metal Exchange.
China's
largest copper producer told the Financial Times on Monday it was
planning "large” exports of the metal. The company will "export a
certain number of [tonnes of] copper in the next few weeks,” said Frank
Chen, senior trader at the company's international trading division in
Shanghai.
The move
by China highlights the contrast in conditions inside the country, where
demand is weak and stocks are mounting, with those in the rest of the
world, where stocks are at their tightest for years.
The
Chinese plan, first reported by Reuters, comes in response to a sharp
fall in inventories at LME warehouses. Metals traders including
Glencore have placed buy
orders in recent weeks to take a record amount of the metal out of the
exchange's warehouses to supply their customers.
Excluding
metal that has been earmarked for delivery, copper inventories at the
LME have fallen to just 150,000 tonnes, the lowest since 2008. That has
pushed the price of copper for immediate delivery to the biggest premium
over longer-dated futures in four years, a sign of market tightness. The
cost of copper for delivery in three months has risen to $8,496.75 a
tonne, up nearly 8 per cent in two weeks.
On the
other hand, stocks inside China are at record highs, leading some
traders to suggest that
China has "cornered” the copper market.
The high
level of stocks and weaker-than-expected demand within the country have
depressed prices on the Shanghai Futures Exchange, putting pressure on
companies such as copper smelters who buy the metal in the global market
and sell it in China.
"The
Chinese smelting industry is bleeding very badly at the moment,” said
James Luke, analyst at CICC. "For Chinese smelters you have to import
based on LME prices but then sell into the Chinese market and they lose
money on that.”
The export
plan is difficult to implement because companies would need to ship
metal from China to South Korea or Singapore to sell it at LME prices, a
process that would take weeks since there are no LME-registered
warehouses in China.
If Chinese
companies fulfil their promise to export large volumes of copper, the
move could depress LME prices in the next few months, analysts said,
especially if it was combined with a fall in imports. "The LME has
become disconnected from end market demand,” said Guy Wolf at Marex
Spectron, a commodities brokerage.
But if the
Chinese economy picks up again in the second half of the year, the
exports could lay the foundation for a larger rally.
"The
single biggest importer of copper on the planet wants to export copper
because there is not enough of it outside their own country,” one trader
said. "Then what happens when China needs to feed its own requirements?”
Some
traders also expressed scepticism about how much copper Chinese smelters
could export given their long-term supply commitments to customers
within China, and various restrictions and taxes on refined copper
exports.
Source:
Financial Times |