(Bloomberg) — A large part of China’s copper demand has all but disappeared after a stunning surge in metal prices to record levels.
Copper prices on the London Metal Exchange topped $13,000 a ton for the first time this week, extending gains over the past year to nearly 50%. A variety of bullish factors could push prices higher in the short term. While real-world buyers typically take time to adjust to such dramatic growth, what’s notable in this case is the extent to which industrial users in the largest markets have scaled back their purchases.
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“The level of price rejection is surprising. The Chinese just don’t buy copper, that’s a fact,” Kostas Bintas, head of metals at trading giant Mercuria Energy Group Ltd., said in an interview. “But it’s limited – at some point you need to buy it.”
The slump in physical demand contrasts with a speculative frenzy in futures markets, as deep-pocketed funds respond to tight global supplies, favorable interest rates and the urge to hedge against geopolitical turbulence by hoarding commodities. Taking into account import costs, the Shanghai copper contract exceeded 100,000 yuan ($14,300) per ton for the first time in late December.
However, Chinese industry accounts for half of global copper demand. Manufacturers who process metal into wire, sheet and pipe for power cables, circuit boards and ductwork are trying to pass higher costs onto factories. As inventories build, smelters that refine copper in the first place are trying to export the excess.
Hai Jianxun, sales director at Henan Yuxing Copper Co., Ltd. in central China, which makes pipes such as air conditioners, said record copper prices “had a significant impact on December.” “The overall market is very quiet – much quieter than it has been in previous years.”
A Mysteel Global survey covering most suppliers showed that due to rising costs, about 60% of transmission copper pole manufacturers have reduced or suspended production this month. This type of product accounts for about half of China’s copper products.
Mysteel said the cost of processing refined copper into copper rods fell to zero this week, the lowest level this year.
Decreased activity is not an anomaly. Even in the fall, when demand typically peaks, manufacturers’ operating rates are at their lowest levels for the season in years. Ultimately, markets are paying the price for a sluggish economic recovery from the pandemic and weak structural growth.
