China Copper Smelters to Cut 2016 Output as Prices TumbleBloomberg News
Reduction accounts for 4.4 percent of China's 2014 output
Zinc, nickel smelters in China have already pledged cuts
Copper smelters in China joined the nation’s zinc and nickel manufacturers in agreeing to cut output as producers of the industrial metals struggle to cope with declines in prices to the lowest levels in six years or more.
Copper suppliers including Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co. pledged to reduce output next year by 350,000 metric tons after a meeting in Shanghai, according to a statement from 10 smelters. That’s about 4.4 percent of China’s annual output in 2014, based on National Bureau of Statistics figures. The country contributes almost a quarter of world refined copper supply, according to Bloomberg Intelligence.
“It’s more a rationalization, getting rid of old, outdated capacity,” said David Wilson, director of metals research at Citigroup Inc. “In terms of China’s copper balance, it means China has to find some more copper imports. That might be moderately supportive to prices.”
Copper has fallen 27 percent this year as China’s slowing economy drags on demand for raw materials used in construction and infrastructure. Goldman Sachs Group Inc. analyst Fu Yubin said last month that China’s commodities markets are in the middle of a hard landing, noting “a long list of potential catalysts for copper’s next major move lower.”
Copper on the London Metal Exchange rose 0.4 percent to $4,604 a ton by 1:37 p.m. in London, after trading lower before the smelters’ announcement.
The smelters will impose cuts and other measures “to maintain the healthy development of the industry,” according to the statement. The companies vowed to stop building new capacity, urged the government not to approve new smelters, and said they would push for mergers and acquisitions to maintain stable capacity in the Chinese copper industry.
The country’s nickel and zinc smelters already said they would curb output amid a rout in commodities that’s dragged the LME Index of base metals to its lowest since April 2009. The cuts have failed to overturn negative sentiment as investors are more concerned about Chinese demand and high inventories, as well as whether the cuts will be fully implemented or replaced by lower-cost output elsewhere.
While some big producers including Glencore Plc announced cuts, Codelco, the largest copper miner, said it would focus on lowering costs rather than output to weather price declines. Antofagasta Minerals SA, another Chilean producer, said companies worldwide had already made enough production reductions to balance the market and buoy prices.
The Chinese smelters also asked the government to support the copper market by buying and storing the metal, and regulating high-frequency trading, according to the statement. The current price of copper is a “departure from market fundamentals,” they said.
— With assistance by Alfred Cang