China Train Wreck du jour. Waiting for lower prices, they better pray:
High copper prices hit China wire and rod plants
Many of China's copper rod and wire producers, unable to pass on surging metal costs to their customers, have stopped or reduced output, industry sources said yesterday.
They said a shortage of copper in China, which consumes one-fifth of world supply, and international prices hovering just below a 16-year peak had bolstered spot copper prices in China's domestic market, scaring off end-users.
"Plants that do not have much cash flow have been affected. Many have closed, but they will resume production after prices fall," the manager of a cable and wire plant in the northern port city of Qingdao said.
China's tighter lending controls, introduced throughout this year to rein in runaway economic growth, were affecting many small and medium-sized copper product plants, which are major buyers of spot copper, the manager said.
Traders in Shanghai, China's copper retailing base, said demand for spot copper had fallen in the past week. Spot buyers had been discouraged by the fact prices for forward delivery were lower than those for immediate shipment.
"When I tell you that you can get copper for 3% less if you take it in a month, and 10% less if you take it two months from now, what would you do?" a trader said.
Another trader, representing a northern Chinese copper producer, said end-users were unwilling to take spot metal at above 32 000 yuan a ton.
But traders said spot copper had been supported at this level in the past week, against about 31 000 yuan three weeks ago.
Shanghai's December copper contract, the benchmark for spot copper, ended on Wednesday at 31 420 yuan a ton, 1 760 yuan and 2 610 yuan higher than the January and February contracts respectively.
China's consumption of copper would dip if spot metal prices stayed high for the rest of the year, industry sources said.
The country would consume 3,7-million tons of copper and produce 2,13-million tons this year, Macquarie Bank said in a report last week.
Industry sources estimated China's fast-growing economy used 20% more copper in the first nine months of 2004 than in the same period last year.
The metal is used in everything from air conditioners and plumbing equipment to computer chips and power stations.
"(The high price) is definitely affecting consumption. High prices are affecting us too: we don't know when we should hedge, as prices could fall at any time," the manager of a large copper producer in the eastern province of Anhui said.
"(Wire and rod) plants will not be able to raise the prices of their products, unless the price of the end products themselves increase," he said.
"But prices of end products like air conditioners have not risen in the past couple of months." - Reuters.
|
