China’s copper exports rise sharply in May; prices likely to weaken globally in H2

After a slowdown in imports of copper in April, China’s copper imports’ results for May indicate a growth trend on a year-on-year basis but a continued decline on month-on-month basis. Refined copper’s net imports dropped 24 percent month-on-month due to a sharp increase in copper exports that was helped by a declining domestic demand and a reverse arbitrage window.

The total net import of refined copper was 234kt in May, as compared with April’s 309kt and May 2015’s 252kt. On a year-on-year basis, imports dropped 6.8 percent. Refined imports dropped 6.7 percent month-on-month to 319kt from April’s 342kt. Meanwhile, refined copper exports rose sharply by 166 percent month-on-month to 85kt in May.

Smelters and traders with export license are expected to have reacted to the price incentive. SHFE copper deliverable stock fell 100.9kt between 28 April and 2 June, whereas major deliveries were made to LME warehouse in Taiwan, Singapore and South Korea. This might explain the huge export of refined metal and some decline in imports of refined copper as certain cargos were sent to LME warehouse. Moreover, huge imports of copper concentrate show strong production at local smelters. Higher production of local refined copper can underpin exports while lowering import demand.

Imports of scrap copper were flat on sequential basis at 272kt. Scrap imports in May remained constant as compared to the earlier month; however, it declined 4 percent on year-on-year basis. Scrap imports have declined as scrap production in the developed nation diminishes whereas concentrate production continues to increases globally.

Imports of copper concentrate in China are the only bright spot. Imports rose 45 percent year-on-year to 1,430kt. On a sequential basis, imports grew 13 percent. Imports of copper concentrates to China have continued to increase as the nation develops its domestic smelting and refining sector. Furthermore, increasing mined production in countries such as Peru has resulted in a widespread availability of the material.

“The strong import results in Q4 15 and Q116 look unsustainable, and we expect similar import results to May in the months ahead, as China’s economy, and thus copper consumption, cools”, said Barclays in a research report.

China’s copper imports are expected to be mediocre in the months to come as demand in the country declines over the summer. Slowdown in copper imports will lower the upward pressure on global prices and will result in weaker prices in the second half of 2016, noted Barclays. Copper is expected to average 195 c/lb in the third quarter and 190 c/lb in the fourth quarter of this year.