Copper prices remain stuck in a narrow range between $US2.90 and $US3 a pound as analysts wonder if the rise in surplus metal stocks in Asia is signalling that China’s restocking is over for the time being.
In fact copper is not alone; many commodity prices have been trading in tight ranges in the past couple of months.
Oil broke out above $US80 a barrel, only to fall back to just under that level, as it did overnight, down to around $US76 a barrel.
There’s a feeling that prices have just about run as far as they can now without a significant upturn in growth prospects in the US and Europe, even if the US dollar continues falling.
That US dollar weakness has played a major part in oil, gold, copper and other liquid commodities (in trading terms) advancing solidly since March.
For copper (and the Australian companies in that metal, led by BHP and RIO), the China market remains the major influence.
And this week we found out that China’s October copper imports were down sharply, 34% from September’s unexpected rise.
Imports fell to 263,109 tonnes of unwrought copper and copper fabricated products in October, just 13% higher year-on-year, according to preliminary Chinese customs data.
The volume is just a bit above the 2009 low of 232,701 tonnes in January and about half the record highs seen in the second quarter.
The closure of arbitrage — buying from the London Metal Exchange and selling in the Chinese domestic market — has discouraged spot purchases but also prompted delays to delay contracted shipments.
The fall in imports might easily be put down to China’s eight-day holiday at the start of October, a factor originally expected to weaken September’s trade figures, which turned out to be surprisingly strong.
Iron ore imports were down 30% from September’s 64 million tonnes in October, but steel production actually rose, up 1 million tonnes to 51.75 million tonnes.
Aluminium imports more than halved as well.
Now more commentators are saying that copper prices will fall from now until early 2010 because of the lower imports into China.
Deutsche Bank forecast this week that copper prices will average $US2.60 a pound in 2010, compared with $US2.34 this year.
Though higher, it would represent a fall from present levels around $US2.94 a pound.
Deutsche Bank claims Chinese imports could fall as much as 30% in 2010.
Who knows, but one thing to be aware of is that China usually cuts back on purchases towards the end of each year, having built stocks to last through the end of the year into the first quarter.
Chinese stocking also tends to run in longer cycles, up to two years, depending on economic growth and world prices.
Chinese buyers (mostly state-owned groups) have a price range where they will start buying, and when they do resume, it’s usually very quiet and well-hidden.
Net imports into China this year (around 35% of annual global demand) will rise to around 3.3 million tonnes.
Deutsche Bank says next year that could fall to 2.3 million tonnes.
Offsetting this will be higher demand from other major economies such as Japan, South Korea, Europe and the US, but whether this is enough to absorb any metal unwanted by China, and add to overall demand levels, is problematic.
But reports in the semi-official Chinese media say that China’s consumption of copper is expected to stay robust next year as Chinese feel more confident about the economy.
But import demand will slacken over the next six months because of the large local stockpiles.
A two-day conference on the weekend in Wuhan last week reported that domestic copper demand will climb next year because output of semi-finished copper products will rise to meet the needs of the power, building and home appliance sectors.
Bloomberg said the conference was told that in 2010, China’s real refined copper consumption is expected to rise 8% on the year to 5.83 million tonnes, supported by the power and building sectors.
According to a research group, Antaike, that will be up from the 2009 consumption which is estimated at around 5.4 million tonnes.
China’s imports of refined copper surged 165% to 2.58 million tonnes in the first nine months of this year, compared with 2008.
Copper stockpiles held in duty-free warehouses in China are running around 350,000 tonnes, up from almost none at the start of 2009. Some of this will have to be re-exported if local buyers don’t take the metal.
That will further depress world prices, if it happens.
The estimate of 350, 000 tonnes is a surprising figure: it is more than triple the inventory in Shanghai Futures Exchange warehouses, which were 104,275 tonnes at the start of the month.
