Interesting article from metalinsiders.com. Sorry the graph didn't copy. It's a free newsletter so you should go there and see the graph. Picture's worth a thousand words. Bobwins
C O P P E R
MI ANALYSIS: China’s refined copper imports surge in 2007…
Metals Insider - 23 January 2008
MI ANALYSIS: China’s net refined copper (not alloy) imports surged by 135% to 1,369,644t last year. In tonnage terms the increase amounted to a massive 785,650t.
There were two elements to this stellar increase in the country’s net imports. Firstly, outright imports rose by a dramatic 666,700t to 1,493,700t.
Read on:
The buying was not symmetric. Rather, it was biased heavily towards the first part of the year, as the spike in the chart above shows.
This was with hindsight a major re-stocking exercise triggered by LME prices falling towards the $5,000/t level over the first part of 2007.
Remember that imports of refined metal had slumped by 32% over the course of 2006, which was a function of commercial de-stocking but more importantly the release of massive amounts of copper into the local system by the government stockpile manager, the State Reserve Bureau (SRB.
The actions of the SRB in 2006 also explain the second part of the sharp rise in last year’s net imports—the fall in China’s exports.
At 125,900t, they were down by 48% year-on-year, equivalent to a drop of 117,000t. A large part of that drop was down to the fact that as well as pumping metal into the domestic market, the SRB in 2006 was forced to make heavy deliveries against loss-making positions on the LME market. The shadow cast by the dealings of Liu Qibing, senior trader at the SRB, was a long one in terms of the disruption to China’s net trade patterns.
That disruption has bedevilled statistical analysis of the Chinese market ever since. Last year’s super-strong imports mean that “apparent” consumption in China—a calculation based on domestic production plus net imports plus/minus changes in stocks registered with the Shanghai Futures Exchange—stands at around 37% in 2007.
The consensus thinking is that this is too high a number, even allowing for strong demand for copper for China’s infrastructure investment, but quantifying how much copper was imported for consumption and how much for re-stocking last year is nigh impossible.
And 2008?
That makes forecasting what will happen this year to the country’s copper imports very difficult indeed. The consensus thinking among market bulls is that the country will have to re-stock again in the coming months.
The December trade figures will encourage such views. Imports of 111,685t were the highest since May, which marked the tail end of the early-2007 restocking surge. Net imports at 104,529t were actually the highest since April.
Premiums for imported copper have risen strongly in January, the local market remains in backwardation and Shanghai Futures Exchange stocks are also low. All of which suggests there is a genuine element of tightness in the domestic market, which, given an import-positive arbitrage, should translate into rising imports over the coming months.
However, we have one note of caution. After the early 2007 surge, imports didn’t collapse in the way they did during the de-stocking cycle of 2006—again that is obvious from the chart above.
They held at a very solid level right through the end of the year and that leaves us wondering whether there is the same urgent need to restock as was the case in late-2006/early 2007.
In other words, imports may indeed rise again this year, but maybe not on anything like the scale seen in 2007.
Please post stock symbols first in all your posts. If it's a foreign stock, please list the US pk equivalent symbol.
If the Commodities Boom is Over, I am just a Gold Bug headed for the Windshield of LIFE
