China metals demand seen up in 2007.
Mon Oct 9, 2006 9:30 AM ET
By Polly Yam
HONG KONG (Reuters) - China, already a powerhouse behind record-high prices of most base metals in 2006, is expected to be the engine pushing up world consumption next year.
With analysts seeing world prices of base metals trading lower next year than this, price-sensitive Chinese copper and nickel users may develop a strong appetite in 2007 after taking a breather this year.
The Chinese economy, the world's fourth-largest, expanded 11.3 percent from a year earlier in the April-to-June quarter, despite Beijing's curbs on investment and exports.
Annual industrial output, an indicator for metals consumption, rose 15.7 percent on the year in August.
"Is there any reason to expect industrial production growth to slow dramatically from the 15 percent growth rate we're seeing?" Adam Rowley, London-based analyst for Macquarie Bank, said.
"You still get double-digit increases in industrial production, that should mean that we get double digit increases in metals almost across the board," he said of growth in 2007.
He said Chinese demand growth would continue to provide a major offset to a slowdown elsewhere in the world.
An overheated economy and resultant high inflation may not be the best choice for China.
Neither would a significant slowdown, as Beijing is trying to boost domestic demand and improve living standards in the majority of provinces that are still poorly developed.
"While the government is trying to control growth, the economy is still growing," Jing Chuan, chief researcher for Great Wall Futures in Shanghai said, believing Beijing may not impose as tough controls as they did this year.
"Under this scenario, the economy next year will be better than this year."
DEMAND GROWTH
Heng Kun, Shanghai-based analyst for Everbright Securities, said copper consumption in 2007 would strengthen because of strong demand from the power sector and infrastructural projects such as facilities for the Beijing Olympics 2008.
"You cannot find a reason that copper demand would fall," Jing said of 2007.
In the first seven months of this year, China's apparent consumption of refined copper fell 3 percent from a year earlier due to high prices, indicating an annual demand of 3.6 million tonnes in 2006, according to Reuters calculations.
The figure is based on net imports, domestic production and visible stocks and sales from the State Reserves Bureau. It is lower than expected growth in consumption of 5 to 8 percent in 2006 forecast by Chinese analysts.
But industry officials in China argued that increased use of scrap copper has disguised the consumption this year, given the output of semi-fabricated copper products rose 7.0 percent during the same period, compared with 7.7 percent in 2005.
They believe consumption has increased this year and would continue to grow in 2007.
"In terms of product output, a five percent growth in copper consumption will be a must. A fall is impossible," a trade manager for fabricator Chinalco Luoyang Copper Co. said.
Demand could increase even more if world prices fall. High prices are the reason why copper demand in China has weakened this year and prompted the use of substitutes such as aluminum and stainless steel to replace copper.
"There is a very good chance that demand will bounce back very strongly next year. We think Chinese copper demand after no growth this year can grow by about 8 percent next year," Rowley said.
For Chinese aluminum consumption, growth may surpass 15 percent next year, despite the fact that its role in replacing copper in the manufacture of rods and electrical cables is unlikely to expand.
China's apparent consumption of primary aluminum in the first seven months of 2006 surged 35 percent from a year earlier, based on Reuters' calculations.
With the output of semi-fabricated aluminum products rising 32.9 percent during the same months, the demand for primary aluminum may surpass 30 percent for all of 2006.
"The exports of products have been good this year, so demand for aluminum has surged," a manager for a fabricating plant in Guangdong said.
He sees such exports falling next year considering that there are growing fears of a weaker economy in the United States.
But demand from the building and car sectors in China is likely to support growth of local aluminum consumption above 15 percent in 2007.
Consumption of refined lead, zinc and tin in the first seven months of this year rose 14.5 to 30.0 percent from a year earlier and may also continue to enjoy double-digit growth in 2007 due to rising needs from the galvanizing, battery and electronics sectors. |
