China sees Copper as the comeback strategy to its deflating economy – Part 1

In January, China imported 413,964 tons of copper, up 13.6% from the same month in 2011.  The increase is even more impressive when you correct for the Lunar New Year.  Due to the holiday, there were four fewer working days in China last month as compared to January 2011.  Copper imports, in any event, exceeded consensus estimates.

December was also good for copper bulls.  That month, China imported a record high 508,942 tons, an astounding 47.7% increase from the previous year.

China is hoarding copper.  The country in Q4 added about 300,000 tons to its already impressive stockpile.

China’s purchases are far in excess of anticipated need.  Estimates for growth in refined copper consumption this year are generally in the 6.0-6.6% range, well below 2011’s 8.5% increase and the 11.5% jump in 2010.

And these estimates for 2012 could end up on the high side.  Construction in China faces troubling prospects this year as prices across the country moderate, decline, or plunge, depending on the specific sector.  And appliances manufacturers, the second-largest users of the metal in China, face a tough year as Beijing ended its two-year-old appliance-purchase subsidy on December 31.  These factors, plus a slowing economy, have led researcher Shen Xiaoqiang to predict that the percentage growth in copper demand in China will fall by half this year to the weakest level since 2006.

So why are Chinese enterprises buying copper like there’s no tomorrow?  Some maintain Beijing sees shortages of the metal while others think the Chinese are just trying to take advantage of recent price declines.  Then there are those who believe that central bank officials are tired of holding U.S. government paper and would like to get their hands on hard assets.

Yet there is another reason, this one buried in the January trade numbers released Friday by the General Administration of Customs.  Year-on-year, China’s exports were down 0.5%.  The month-on-month figure was even worse.  It was off 14.2%.  Despite the decline, the trade surplus came in at $27.3 billion, up from $16.5 billion in December and $6.5 billion from a year earlier.

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Posted by Usman Khalid on Feb 13 2012. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.