(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)
China imported 373,000 tonnes of refined copper in June, the highest monthly tally this year. Cumulative imports over the first half of the year came in at 1.87 million tonnes, up by 4.4% on the first half of 2021.
This renewed hunger for refined copper has not been for want of raw materials.
Mined concentrate imports were also up in the first six months of the year to the tune of 8.6% year-on-year. Copper scrap flows were 7.3% higher.
The country’s resurgent demand for imported copper runs counter to the macro picture of stuttering Chinese manufacturing activity and continued weakness in the all-important construction sector.
Yet China’s micro indicators all suggest the country is running short of copper right now.
The June surge in refined copper imports was flattered by almost 50,000 tonnes of metal designated as Chinese-origin.
This suggests a mass movement from bonded warehouses, possibly a turnaround of copper that was “exported” earlier in the year.
Headline exports were up by 27% year-on-year at 167,000 tonnes in January-June. It’s quite possible that some of this metal was shipped only as far as a bonded warehouse by those producers able to bypass China’s refined export tax by tolling imported concentrate.
Even allowing for some tax-defined yo-yo movement in the headline figures, China’s net call on refined copper from the rest of the world was still up by 2.6% on the first half of 2021.
Indeed, cumulative year-to-date net imports of 1.70 million tonnes were the highest first-half count of any of the last five years except 2020, when refined copper imports broke all historical records.
One of the reasons China imported so much refined copper in 2020 was a drastic decline in imports of scrap ahead of a complete ban in 2021 on what the government classified as solid waste.
Beijing policy-makers were persuaded not to cut off such a significant source of copper and reclassified scrap as a recyclable resource as long as it met minimum purity thresholds.
The policy U-turn came too late to prevent recyclable copper imports from collapsing to under a million tonnes in 2020. That squeezed domestic metal production at secondary refining plants and forced Chinese product manufacturers to use more refined metal in their mix.
The scrap-impact combination helped generate record-shattering refined copper imports of 4.67 million tonnes that year.
Imports of copper recyclables rebounded to 1.7 million tonnes in 2021 after the reclassification and have picked up further pace to 881,000 tonnes so far this year.
The reclassification was more generous than expected in its tolerance thresholds but the recyclable copper now being imported is still much higher purity than pre-2020 levels, implying higher contained metal content.
There is, in short, no scrap swing effect behind higher refined copper imports this year.
Nor does there seem to be any shortage of concentrates, China lifting imports in the first six months of the year despite a string of production disruptions, particularly in Latin America.
China’s first-half refined copper production was up by between 2.1% and 2.5% year-on-year, according to the state research house Antaike and the national statistics office respectively.
All of which makes the current squeeze on refined copper availability in China something of a surprise.
Shanghai Futures Exchange (ShFE) stocks have returned to the super-low levels seen at the start of January, currently standing at just 37,025 tonnes. The seasonal rebuild over the lunar new year holidays was muted relative to previous years and has quickly reversed.
Bonded warehouse stocks rose sharply to 294,000 tonnes over the first quarter, according to Shanghai Metal Market (SMM). However, they have since slipped to 242,000 tonnes. This time last year, there were 440,000 tonnes sitting in China’s bonded warehouses.
Low inventory has translated into persistent time-spread tightness on the ShFE forward curve and a spike in the Yangshan premium, a closely-watched gauge of China’s import appetite.
Currently assessed by SMM at $94 per tonne, the premium has sky-rocketed from just $20 in April to a seven-month high.
The call for more metal is clear, with bonded warehouse stocks the first point of call, judging by the yo-yo “imports” of Chinese metal in June.
China’s robust copper imports are a contrarian signal at a time when the country’s manufacturing sector is struggling to regain the momentum lost during rolling covid-19 lockdowns in the first half of the year.
Indeed, fears about China’s ability to refire its growth engines are why London Metal Exchange (LME) three-month copper is currently trading around $7,800 per tonne compared with all-time highs above $10,000 as recently as March.
It’s quite possible that China’s domestic copper supply chain has been disrupted by Beijing’s zero-covid policies and that the current import strength will prove no more than a passing phenomenon.
It’s equally possible that the sharp slide in the copper price has triggered a restock reaction after the de-stock occasioned by this year’s earlier record price highs.
That, though, still raises the question of what China’s physical players are seeing that the copper price isn’t telling us.
(Editing by Jan Harvey)