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Chinese Copper Buyers Stocked Up on Weak Prices, Glencore Says

Copper buyers in China, the world’s biggest consumer of the metal, took advantage of fourth-quarter price weakness to stock up, said Glencore International Plc.

Following are comments on industrial-metals markets made today in a statement by the Baar, Switzerland-based company. Net income before exceptional items at Glencore, the world’s largest publicly traded commodities supplier, rose 7 percent to $4.06 billion in 2011.

On aluminum and alumina markets:

“Arbitrage opportunities in aluminum were more favorable in 2011, with increased opportunities for inventory financing transactions and cash-and-carry deals.

“The more recent decline in prices has increased producer margin pressure, with many no longer able to cover their production cost. Indications for aluminum premiums for duty unpaid, in-warehouse material at the beginning of 2011 were $110-135 per metric ton, with an average 2011 range of approximately $110-130 per ton and a more recent level of $95-120 per ton.

“Investor demand for physical metal, supported by wide contangos, has kept overall physical markets reasonably balanced.”

On copper, lead and zinc markets:

“2011 markets were particularly characterized by supply disruptions and continuing decline in mine ore grades.”

Copper “production declined on an outright basis and is expected to continue to do so well into 2012 until the production cycle from ore to metal is re-established. This lack of supply growth explains the relative strength in prices witnessed in the face of weak demand in Europe and U.S.

“Lack of new production is also relevant for zinc, though with China not being a net importer, zinc metal prices were relatively weaker.

“The second half was dominated by reactions to the European financial crisis, in terms of price volatility on the terminal markets and consumer behavior and purchasing patterns. Inventories in China had declined from the high levels since the purchases in 2009 and 2010 when prices were lower. Inventories in the U.S. and Europe, which had seen major drawdowns since 2009, had not been rebuilt amid the uncertainty over Europe and were in fact cut even further throughout 2011 and remain that way.

“Chinese buyers, on the other hand, have used price weakness in the fourth quarter to purchase large amounts of metal for nearby delivery and rebuild the inventory pipeline to a more ‘normal’ level, particularly for copper.

“We also saw the first signs of demand strength in the U.S. during Q4 2011, most evident in the automobile sector where production was ramped up, following the supply-chain disruptions in Japan and Thailand.

“There has been good consumer demand for zinc, although purchasing was for current demand with no emphasis on restocking.”

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