China Copper Output May Drop on Scrap Shortage This Year

Refined copper production in China may fall 500,000 metric tons in 2013, about 9 percent of the output last year, on a scrap shortage and delayed commissioning of new facilities, the nation’s third-largest producer said.

“Scrap supply will be even tighter going into June,” said Chen Jie, head of sales and marketing unit of Jinchuan Group Co. The smelter’s own refined production may fall short of a target of 600,000 tons this year by at least 100,000 tons, Chen said in a phone interview today.

Copper in London has retreated 8 percent this year on concern that a slowdown in China’s growth could hurt demand from the largest user. A 6.4 percent slump in April has kept scrap dealers unwilling to sell, and China’s ports began tighter enforcement of existing rules in February to weed out low-grade scrap, slowing customs procedures.

“Market participants can now feel the tightness as scrap traders really don’t have much at hand to sell,” Pang Juan, an analyst at Jinrui Futures Co., said by phone from Shenzhen. “That will help drive up local prices, and attract more imports in June.”

Copper for immediate delivery on Shanghai’s Changjiang Nonferrous Metals Market was quoted at a premium of 500 yuan ($81) a ton today to the front-month contract on the Shanghai Futures Exchange.

“Consumption this year is better than last year,” said Chen, who estimated growth could be 4 percent to 5 percent. “We may not see the lull season in summer as usual, as demand from construction of subways, railways and power grids all seem to be better than last year.”

Good Demand

Plants that previously used scrap copper to make copper rod have been using refined metal, Chen said. “They also said their orders books in June are as good as in May, which is quite unusual, showing demand is fairly good,” he said.

Refined copper demand is expected to grow 7 percent this year to 8.3 million tons, while production is likely to gain 8 percent to 6.3 million tons, Duan Shaofu, deputy head of the heavy metals department at the China Nonferrous Metals Industry Association, said on May 13.

Output at the two biggest Chinese producers, Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co., has been affected by the shortage, according to Chen. Some planned capacity additions, including Jinchuan’s 400,000 tons, will be delayed, further lowering the nation’s output, Chen said.

Chinese copper demand, after the adjustment for stock moves in the bonded as well as SHFE warehouses, has been growing at 10 percent in the first quarter from a year ago, Macquarie Group Ltd. said in a research report yesterday.

Copper inventories tallied by the Shanghai Futures Exchange declined to 176,624 tons this week, the lowest level in eight months, exchange data showed today.

China produced 5.82 million tons of refined copper last year, of which 32 percent was made from scrap, according to the industry association.