China producers want to export copper

By Jack Farchy in London and Leslie Hook in Beijing

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.

Jiangxi Copper, 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.

Sourced & published by Henry Sapiecha

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