Graphic: China's holiday-skipping factories give copper bullish start to Year of the Ox
08/02/2021 07:44
By Mai Nguyen and Tom Daly
Feb 8 (Reuters) - Instead or increasing, as they usually do
in the run up to the Lunar New Year, copper inventories in China
have dropped to near decade lows on robust demand from factories
that are maintaining high operating rates over the usually slow
holiday period.
Copper demand in China, the world's top metal consumer,
typically softens as businesses close for the week-long Spring
Festival, which starts on Feb. 11 and ushers in the Year of the
Ox.
But with migrant workers largely heeding Beijing's call to
avoid travel this year to curb the spread of the coronavirus,
factories with strong order books have shortened planned
shutdowns and are hoarding copper for their own use as visible
exchange stocks dwindle. urn:newsml:reuters.com:*:nL4N2K31HN
Refined copper inventories in warehouses tracked by the
Shanghai Futures Exchange CU-STX-SGH were at 68,588 tonnes on
Feb. 5, near their lowest since 2011 after brisk manufacturing
orders chewed through metal stockpiles in late 2020.
urn:newsml:reuters.com:*:nL4N2I9237
"Most of our plants in China have no more than two days
holiday this Chinese New Year," said a source with a major
copper tube manufacturer, adding some were not stopping at all.
The manufacturer, which supplies the air conditioning
industry, will increase purchases of copper cathodes - a basic
form of copper used to make tubes and rods, "by 20% compared to
a normal year," the source added, declining to be identified as
the information was not public.
"We think the peak season will be earlier this year," the
person said, adding that orders should be good in the coming
months because air conditioning plants need to stock up for
summer sales.
Makers of semi-fabricated copper products "have increased
their stocks of raw materials before the holiday to almost
double the normal level," said Shanghai-based copper analyst He
Tianyu of consultancy CRU Group.
WAVES OF DISRUPTION
Already-tight cathode supply was exacerbated by disruption
in top copper producer Chile, where high waves delayed shipments
to China, which usually take 35-40 days, for most of January.
urn:newsml:reuters.com:*:nL1N2K42J1. A tight global shipping container market also
impacted shipments. urn:newsml:reuters.com:*:nL4N2IP1TV
Premiums to import cathodes from bonded warehouses into
China SMM-CUYP-CN have surged 59% since November to six-month
highs of $73 a tonne, underscoring strong demand for physical
metal.
"Export-oriented manufacturers have taken up pretty strong
order books for the next one to three months," said Citi
commodities strategist Tracy Liao.
"Some ... are so under-hedged on their raw materials that
they step in for some purchases ahead of Chinese New Year. This
is something that we haven't seen for a few years," she added.
Shipments from Chile have now resumed, meaning shortages
should ease, but with copper prices also at multi-year highs in
Europe and the United States, imports and drawdowns on bonded
inventories won't come cheap.
"If the Chinese need copper they will have to pay for it.
I'm bullish for March and ahead," said a Chilean copper
supplier, declining to be identified as he was not authorised to
speak to media.
Chinese copper demand will be even stronger in the second
quarter, supported by solid home appliance orders and more
construction activity, CRU's He said.
"If we're only talking fundamentally, the price will
definitely go up," He added.
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China copper stocks seasonally https://tmsnrt.rs/3jqGJWV
LME copper prices vs inventories https://tmsnrt.rs/2MIt8OJ
Map of vessels from Chile to China https://tmsnrt.rs/3cR7dPW
Premiums to import copper cathodes into China have surged since
November on robust demand https://tmsnrt.rs/2N5H8ly
The price difference between ShFE and LME copper prices in
recent months https://tmsnrt.rs/39YN08Z
China copper prices vs stocks https://tmsnrt.rs/3tElCF0
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(Reporting by Mai Nguyen in Hanoi and Tom Daly. Editing by
Gavin Maguire and Simon Cameron-Moore)
((mai.nguyen@thomsonreuters.com; +842438259623; Reuters
Messaging: mai.nguyen.thomsonreuters.com@reuters.net))