Copper consumption in China will contract this year for the first time since 2008 as demand falters and inventories climb in the largest user, before rebounding in 2013, according to Simon Hunt Strategic Services.
Consumption will drop about 8.5 percent to 5.6 million metric tons in 2012, said Simon Hunt, chief executive officer of the Weybridge, Surrey-based consultancy, which compiles analysis for users and fabricators. Next year, usage may grow 5.6 percent to 5.9 million tons, Hunt said in an interview in Singapore after visiting China for two weeks last month.
Hunt’s assessment adds to signs that China’s slowdown is hurting demand for commodities. Copper, used in wires and cables, helps set the pace for other base metals and the drop in China’s consumption may hurt prices and cut profits at mining companies including Freeport-McMoRan Copper & Gold Inc. Copper rose 6.8 percent last quarter as central banks in the U.S., China, Japan and Europe expanded stimulus to try to revive economic growth.
“The safety valve of exports has gone, the domestic economy is slowing down, they have a problem of surplus capacity and cash is extraordinarily tight,” said Hunt, who estimated total copper reserves in China at 3.5 million tons, including reported and unreported stockpiles. “There are no signals of a recovery in heavy industry and manufacturing.”
Three-month copper futures on the London Metal Exchange, which tumbled 21 percent last year as Europe’s debt crisis hurt global growth, traded at $8,198.25 a ton today. The price touched $8,422 on Sept. 19, a week after the U.S. Federal Reserve announced a third round of so-called quantitative easing. The U.S. is the world’s second-largest copper user.
China’s slowdown this year “has been significant,” the World Bank said in a report yesterday, citing declining external demand and a property-market correction. Copper stockpiles monitored by the Shanghai Futures Exchange totaled 162,547 tons in the week to Sept. 27, about 66 percent above a year earlier.
“There’s a huge amount of inventories of all types,” said Hunt, whose visit to China included one of the top five power-cable makers. “You walk round and trip over drums of cables.”
China imported 2.39 million tons of refined metal in the first eight months, up from 1.51 million tons the previous year, according to Bloomberg calculations based on customs data. Global demand exceeded output by 129,000 tons in the first half of 2012, the World Bureau of Metal Statistics said on Aug. 16.
“When you get a pickup, it’s not going to have an immediate impact on output of semi-fabricated products because you’ll be depleting inventories,” said Hunt. There are about 650,000 tons of copper in bonded warehouses, he said. That matches forecasts by Barclays Plc and Standard Chartered Plc.
Refined consumption in China may expand about 2 percent to 4 percent a year from next year, compared with average growth of about 10 percent a year the past 10 years, he said. Consumption shrank 0.9 percent in 2008 amid the global recession.
Growth in China’s economy slowed to a three-year-low of 7.6 percent in the second quarter. The government is trying to prevent expansion this year from slipping below a 7.5 percent target set in March, which would be the weakest since 1990.
Hunt started in the metals and mining industry in 1956 and founded advisory company Brook Hunt, now a research unit of Wood Mackenzie Ltd., in 1975.