China's record copper, iron ore imports are not being put to work

The copper price's February comeback accelerated on Tuesday, bringing gains so far this month to more than 4%.

In New York trade spot copper jumped 2c to $3.34 a pound, up from $3.20 hit at the end of January over fears of a marked slowdown in the economy of number one consumer China.

For 2014 economists are predicting 7.4% which would make it the slowest nominal growth since 1990.

Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.

Yet, copper imports into China which last year amounted to 44% of the global trade in the red metal, continue to surge.

The 536,000 tonnes of refined copper imported in January constituted a 53% jump over last year's tally and 21% more than in December.

China's electricity grid build-out is responsible for 40% of the country's demand and growth in the sector is expected to be double that of the economy as a whole which could account for the spike.

At the same time inventories in London Metal Exchange warehouses continue to be drawn down.

LME stocks reached a decade high of 678,000 tonnes in June last year when copper fell to $3.03 a pound, a close to 3-year low, but since then the declines have been remarkably consistent reaching fresh low this week of 296,000 tonnes.

Reuters columnist Andy Home points to a different reasons for China's copper appetite, where stocks are rising even as they disappear elsewhere:

"But sharply rising inventory within China suggests that financing demand for copper is currently just as important as manufacturing demand in forcing up the import pace.

"Much of the imports were likely driven by financing, as tight monetary conditions persisted in Q4 and rates rose," wrote analysts at Barclays Capital.

While easing in January credit remains tight in China. In December the interbank repo rate climbed to the highest since a record liquidity squeeze in June last year spooked markets.

While using warehoused copper for credit financing is a long established practice, the same dynamic now seems to be at play in iron ore, where China plays an even more dominant role in the 1.1 billion tonnes seaborne trade.

The price of iron ore on Tuesday remained steady at $124.40 a tonne after bouncing off last week's seven month low of $120 a tonne.

China's steelmakers imported a record 86.84 million tonnes in January, up 18% on December and more than 21 million tonnes higher than January 2013.

But with the latest China Iron & Steel Association data showing output falling to under 2 million tonnes per day from last year's torrid pace which peaked above 2.2 million tonnes, stockpiles at the country's major ports also grew, topping 100 million tonnes for the first time in 18 months.

"Imports kept piling up at ports as more cargoes are being hauled in for trade-financing deals," Gao Bo, chief iron ore analyst at, a researcher in Shanghai, told Bloomberg earlier this week.

Image from Thomas Fisher Library.