Chinese ports began tighter enforcement of existing regulations in February to weed out low-grade scrap, Ma Xiaoxin, deputy head of the copper department at state-owned China Minmetals Nonferrous Metals Co., said in a phone interview from Beijing yesterday.
Miners including BHP Billiton Ltd. (BHP) and Codelco may benefit with ore imports jumping 26 percent in the first quarter while inbound scrap copper shipments fell 4.6 percent in the four months through April, according to customs data. About 32 percent of the country’s refined copper was derived from scrap last year, according to the China Nonferrous Metals Industry Association.
“The growth of China’s refined production using ore has been fairly quick,” said Duan Shaofu, deputy head of the heavy metals department at the metals association. China’s refined output this year may rise 8 percent to 6.3 million metric tons, Duan said.
Global demand will outpace supply by 269,000 tons in the six months through September, cutting this year’s glut to 92,000 tons, Barclays Plc estimates. That’s down from a 142,000-ton surplus in 2012.
Copper for delivery in three months on the London Metal Exchange tumbled to $6,762.25 a ton on April 23, the lowest since October 2011, and traded at $7,222.75 at 2 p.m. Shanghai time. It has fallen 9 percent this year. Shares of BHP, the world’s biggest miner, fell 1.1 percent to A$33.67 in Sydney trading. Chile’s state-owned Codelco isn’t listed.
“Cargoes that don’t meet the standards will be sent back, so it damps buyer willingness to place orders,” Zhang Lin, head of the information office at the recycling metal branch at the metals association, said May 10. “As transport and logistics take time, the full impact may have not emerged yet.”
A call to the press office of the customs agency today to seek comment was not answered.
The slump in copper prices this year kept scrap dealers on the sidelines, creating an artificial shortage, said Ma of Minmetals. They may return if prices rise to $7,500, she said.
Copper will trade at $7,750 in the fourth quarter, the median of 30 analyst estimates compiled by Bloomberg shows.
“The scrap price isn’t very competitive,” Zhang said. “Companies tend to use more ore if they can.”
The implied average price of scrap copper imports in China in March was $3,326 a ton, 13 percent higher than December.
Almost two-thirds of scrap copper used by China, the largest producer of refined metal, was imported last year, according to Ma. The U.S. accounted for about 21 percent of imports during the first quarter and through 2012, according to calculations by Bloomberg based on government data.
China bought 217,685 tons from the U.S. in the first quarter, 6.7 percent lower from a year ago, customs data show. Scrap supplies in the U.S. may drop 20 percent this year as recycling of home appliances and machinery slows, she said.
“Tight scrap supply led to a drop in utilization rates of refined producers,” said Zhu Wenjun, an analyst at data provider SMM Information & Technology Co. in Shanghai. “Operation rates declined 2.53 percentage points to 89.45 percent in April and may slide further to about 88 percent in May.”
China’s copper output rose 11 percent in the first three months to 1.55 million tons, data from the metal association showed. The country produced 5.82 million tons last year.
To contact Bloomberg News staff for this story: Helen Sun in Shanghai at email@example.com