Copper Scrap Demand Growing on Infrastructure & Power Grid in China

China’s refined copper scrap imports moving up strongly

This year will show solid rises in China's copper output, helped by the global flow of concentrate, and a 5-6% growth in demand, driven by infrastructure, says Bonnie Liu, General Manager of GF Futures (Hong Kong).

China’s refined copper production remains high

The production of refined copper scrap in China remained high over the first five months of this year, assisted by the sufficient supply of copper concentrate in the global market. From January to end-May 2016, Chinese refined copper production reached 3.4 million tonnes, up by almost 10% year-on-year.

The strong rise in China’s copper output this year has been supported by the availability of concentrates from the global market. China’s imports of copper concentrates in May came to 1.43 million tonnes, according to Chinese customs data, up by 45% year-on-year. And from January to May 2016, China’s total copper ore imports were up 33% year-on-year to almost 6.7 million tonnes.

As a result, TC/RCs climbed on the spot market, with the latest offer to Chinese smelters at $100 per tonne/10cents per lb or above, compared with $85-90 per tonne/8.5-9.0 cents per lb this April or May.

The  Copper Concentrates Index was calculated at $97.50/9.75 cents on June 15, as Chinese smelters reported purchases between $102/10.2 and $105/10.5, and traders bought material in the $90s/9s. The index is up from the year low of $82.40/8.24 seen at the end of the first quarter.

China’s imports of copper cathode rose sharply in early 2016

China’s refined copper scrapimports moved up strongly in the first four months of 2016, supported by the positive arbitrage between the LME and the SHFE in copper prices in this period. From January to end-April, China’s total refined copper imports were up by 26% year-on-year to 1.45 million tonnes. Chinese unwrought copper and alloy imports in May came to 428,000 tonnes.

The complete data for May’s copper scrap imports is still awaited. But based on the previous percentage of refined copper imports against the total figure for unwrought copper, GF has estimated that China’s refined copper imports for May 2016 will total about 330,000 tonnes. Therefore, from Jan to May 2016, China’s total refined copper imports will total about 1.78 million tonnes, up 25% year-on-year.

China’s refined copper demand was higher than expected in January-April 2016

The figures for China’s copper scrap exports in May 2016 are still awaited, so GF can only calculate the copper demand for the first four months of this year. After adjusting for the stock changes at the SHFE warehouses, we calculated that for the first four months of 2016, China consumed about 3.96 million tonnes of copper cathode, up 15% year-on-year.

If the stock rise in the bonded and other warehouses is included, we estimate that China’s demand for refined copper grew up by 8-9% year-on-year to 3.6 million tonnes for the first four months of 2016. This growth rate was much stronger than the previous "view from the street" forecast of 3% or less.

The substantial rise in Chinese copper consumption in the year to date was led by the power cable industry, particularly to meet the requirements of the new power generating projects, especially in solar energy. The preferential policy on the solar sector will end on June 30. As a result, there has been a surge of Chinese investment into solar power projects over the first few months of 2016, leading to a strong rise in copper demand from the cable industry over that period. According to official statistics, between January and May, China’s power grid infrastructure investment has increased by 39% year-on-year to 163.8 billion yuan ($24.8 billion).

China has made heavy investments in its national grid in the year to date

Overall, China plans to install 18.1GW of solar power in 2016, according to the National Energy Bureau, which is 20% more than the 2015 figure of 15.1GW. In the first quarter of 2016, China has already added a total of 7.15GW of solar power facilities, almost 40% of its target for 2016.

However, there are indications that some of the strong rise in copper demand from the cable sector seen in the year to date stems from pre-emptive demand for supply for use in the second half of the year.

GF has been hearing that the order books for some cable producers dropped off significantly moving into June, especially from the solar sector, simply because the government’s subsidies policy expires at the end of June.

Some of the leading cable producers’ order books are now flat year-on-year, moving into the summer period, when they were showing a year-on-year rise of more than 20% in the first quarter of 2016.

The only segment of China’s copper demand that has been showing a downturn is the home appliances market. China’s output of air-conditioning units from January to end-May 2016 showed a 6.5% year-on-year fall. Fridge and freezer output also went down by 4.5% year-on-year and 15% year-on-year, respectively, over the corresponding period.

GF has also noticed that the inventory of these home appliance products rose in China from the beginning of April 2016. Most of these drops in sales of white goods were led by the weakness of the domestic consumer market despite the recent strength of transactions in the Chinese housing market.

Chinese exports seem to be running relatively steady or positive in the year to date, perhaps gaining from the heavy destocking seen in the western market over the past two years.