Chinese smelters are in discussions to export copper under annual contracts for the first time, according to people familiar with the plans.

The potential export contracts are a reflection of several factors, including a change in taxes on copper exports and an increase in Chinese smelting capacity. But they also highlight the downbeat sentiment in the Chinese copper market as the economy slows and warehouses in the country are groaning with copper stocks.

The slowdown in Chinese copper demand, together with sluggish growth in the rest of the world and the prospect of rising mine supply, has weighed on copper prices. Yesterday, benchmark copper on the London Metal Exchange fell to a seven-week low of $7,670 a tonne.

The discussions about exports are counterintuitive, since China is the world's largest consumer of copper, accounting for 40 per cent of global demand. The export contracts, if agreed, are likely to be small relative to China's annual imports of about 3m tonnes of copper metal. Traders estimated that China's copper exports next year were likely to be roughly a tenth of that level at 200,000-400,000 tonnes.

China has exported small amounts of copper in the spot market in the past, in general when domestic demand has been weak. As the Chinese economy slowed earlier this year, exports accelerated, hitting a peak of 102,000 tonnes in May.

But the deals under discussion are unusual in that they would commit Chinese smelters to exporting a fixed quantity of metal each month, regardless of the state of the local market.

Analysts and traders said that the move to export copper under annual contracts was in part an indication of the smelters' lack of confidence in the outlook for local Chinese demand.

"What you're seeing is Chinese smelters hedging their bets a bit,” said Richard Wilson, chairman of metals at Wood Mackenzie, a consultancy. "One thing you don't want to be doing is buying your concentrates [unrefined copper] for the year and finding the domestic market going through one of these lulls.”

An executive at a large Chinese copper smelter said there was a "possibility” it would sign annual contracts for copper exports. "We are still under discussion for next year's plan,” he said, adding that in current market conditions "exporting economically makes more sense than selling domestically”.

Source: ftchinese