COLUMN-China's rising copper imports belie manufacturing gloom: Andy Home
nasdaq.com
November 28, 2023 — 08:09 am EST
Written by Andy Home for Reuters ->
[See link abive for graphics]
By Andy Home
LONDON, Nov 28 (Reuters) - China's imports of refined copper have quietly accelerated over recent months, taking volumes to a year-to-date high in October.
Inbound flows have been boosted by catch-up shipments from the Democratic Republic of Congo, where China's CMOC Group 603993.SS was blocked from exporting between June last year and April this year during a prolonged stand-off with the government over taxes.
China's appetite for imported copper is not confined to refined metal. It is also absorbing record amounts of copper concentrates and imports of recyclable metal are running at the fastest pace since 2018.
The mystery is where it is all going. Visible inventory in China is low and falling even as the country's manufacturing sector struggles to build any positive momentum.
IMPORT STRENGTH
China imported 353,000 metric tons of refined copper in October, which was the highest monthly volume this year.
Cumulative imports of 2.99 million tons over the first 10 months were just 4% below last year's tally, or 6% on a net basis factoring in slightly higher exports this year.
The clearance of CMOC's backlog is manifest in sharply higher volumes being shipped from the Congo. Imports over the last three reported months totalled 259,000 tons and year-to-date flows of Congolese metal are up by 18% on 2022 levels.
That may flatter the broader import picture but only in terms of refined metal. China's hunger for raw materials has also been growing strongly.
Imports of mined copper concentrates rose by 9% year-on-year over the January-October period and are on track to exceed last year's record count of 25.3 million tons.
The country has also been soaking up increasing amounts of recyclable copper with scrap imports up 9% on last year's tally.
Indeed, flows of recyclable copper so far this year are the highest since 2018, the last full year before the government began clamping down on lower-grade scrap imports.
Beijing backed down on its plan to ban completely what it termed "foreign garbage" but set higher purity thresholds on imports from 2021. That means that there is more copper contained in current scrap imports than was the case in the 2010s, making historical comparisons trickier.
BOOMING OUTPUT, LOW STOCKS
Higher raw materials imports this year have allowed China's smelters to ramp up run rates.
National production of refined copper cathode was up by 10% year-on-year in October and by 11% over the first 10 months of this year, according to local data provider Shanghai Metal Market.
But the combination of surging domestic production and rising imports has made little impact on visible inventories in China.
Stocks registered with the Shanghai Futures Exchange (ShFE) stand at a low 35,878 tons, down by 48% on the start of January. Those held in bonded warehouses operated by the International Energy Exchange, ShFE's international arm, total 34,203 tons, unchanged since June.
Other bonded inventory has fallen to multi-year lows of just 9,400 tons, according to Shanghai Metal Market.
With visible stocks low and sliding, it is unsurprising the Yangshan premium SMM-CUYP-CN, a closely watched indicator of China's import appetite, has shot up to its highest this year.
All the evidence suggests that China's domestic market is tight and the call on more imported units is correspondingly strong.
BLACK HOLE
The strong micro dynamics belie the bigger Chinese picture.
Both the official purchasing managers index and the Caixin index, which tracks small and medium-sized companies, fell into contraction territory in October, suggesting no turnaround in the country's stuttering manufacturing sector.
True, copper demand has benefited from strength in green transition sectors such as electric vehicles and power grids, in part offsetting lower demand from more traditional sectors such as household appliances.
Capital spending on China's power grid, for example, has grown by over 6% so far this year, outpacing growth of 1% and 5% in 2022 and 2021 respectively, according to analysts at Citi.
But it is hard to avoid the conclusion that some of the copper entering China is going into a black hole of non-visible inventory build, either commercial or strategic or quite possibly a combination of the two.
The opinions expressed here are those of the author, a columnist for Reuters.
China's refined copper imports are creeping higher tmsnrt.rs
China's copper inventories are falling as import premium rises tmsnrt.rs
(Editing by Barbara Lewis)
(( andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter twitter.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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