Copper’s Collapse Poised to Spur Buying by China’s Stockpiler

Copper’s drop to the lowest in more than five years is raising speculation China’s government will take advantage of lower prices to buy supplies, hastening a rebound.

The metal has slumped 10 percent this year and yesterday slid below $5,500 a metric ton in London for the first time since 2009. China’s imports of the metal rose to a record last year, accelerating in the second half as prices fell. The country’s State Reserve Bureau may purchase as much as 350,000 tons of the metal this year after picking up 500,000 tons in 2014, according to estimates by Everbright Futures Co.

Buying by the SRB is closely monitored because its purchases can tighten supply. The stockpiler sources most of the metal through domestic traders, who import batches over a period of months. Prices in New York slipped to as low as $2.517 a pound yesterday, the weakest since July 2009, amid a commodity selloff on concern that economic growth is slowing in China, the world’s biggest metals consumer.

“I’d expect the SRB to step in and buy here,” said Ian Roper, a commodity strategist at CLSA Ltd. “They always pop up when the price is down below $3 a pound, so the SRB should certainly be coming back.”

Imports of copper, iron ore, crude oil and soybeans climbed to records in 2014 as prices tumbled, customs data showed Jan. 13. China’s purchases of unwrought copper and products climbed 7.4 percent to 4.83 million tons, according to the data.

Opportunistic Buying

“Chinese commodity buying is generally very opportunistic in nature, as prices decline they tend to buy more, as we saw with oil imports in December,” said Mark Keenan, head of commodities research for Asia at Societe Generale SA in Singapore. “Following the release of the trade data on Tuesday, it was clear that copper buying, along with oil and soybeans and other commodities, has been significant recently. This raises questions of how much further buying the Chinese will need to do.”

Copper for delivery in three months on the London Metal Exchange rose 1.6 percent to $5,634 a ton at 5:50 p.m. in Hong Kong.

Any price rebound will depend on government stockpiling by China this quarter and the pace of demand growth, analysts at Goldman Sachs Inc. said in a report dated Jan. 13.

“It is very possible that the SRB will purchase more copper this year as prices are cheaper than they had forecast,” said Xu Maili, a Shanghai-based analyst at Everbright Futures.

The premium paid over LME prices for delivering copper into Shanghai’s Yangshan port climbed 33 percent since Dec. 25 to the highest in two months, SMM Information and Technology data show.

“The physical premium is climbing again, so clearly the physical buyers are saying prices are attractive,” Roper said.

— With assistance by Alex Davis, and Alfred Cang

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