China is slowly expanding its physical copper imports as the rest of the world frets about the recession.
In the first eight months of the year, the nation’s net demand for refined copper from the rest of the globe increased by 9.8%. Volumes for the first half of the year are the highest since China imported a record quantity of metal in 2020.
China is concurrently reducing its imports of copper scrap and mined concentrates. Indicating that there is no dearth of refined goods.
Strong import flows defy the general doom surrounding China’s indebted Real estate market as well as the more specific issues at trading house Maike, one of China’s main copper import routes.
In the first eight months of this year, China’s net imports of refined copper increased by 200,000 tonnes from the same period in 2021 to 2.31 million tonnes.
That, however, significantly understates the scope of the current shopping frenzy. Even as recently as May, imports were below levels from the prior year. In the last three reported months, the rate has been running at an annualised 3.87 million tonnes after picking up significantly in June.
Only in 2020, when COVID-19 chilled manufacturing activity first in China and then globally due to the LME copper price falling to below $5,000 per tonne. Have annual imports exceeded that amount.
Chinese purchasers are currently taking advantage of copper’s sharp decline from above $10,000 per tonne in March to its current price of $7,425.
In many senses, the stocking cycle has turned at this point.
Between 2020 and 2021, the price of copper doubled. Putting smaller customers through so much hardship that Beijing had to release about 110,000 tonnes of metal from the state stockpile.
Extreme prices led the government to destock. So it’s safe to assume that the entire domestic supply chain was doing the same.
The restocking impetus is also moving across the import channels for copper’s basic materials.
Copper scrap imports so far this year are up 8.2% from the same period last year. Continuing the upward trend that began after it was removed from the list of prohibited waste imports in 2020.
1.19 million tonnes of imports through August may seem low compared to past years. But the material entering China now must meet far higher purity standards due to regulation reclassification from “waste” to “resource.”
“With 214,000 tonnes of recyclable copper shipped to China so far this year—an increase of 48% over 2021 rates“—the United States has reclaimed the top supplier spot.
It’s important to keep in mind that some of this material will be sent directly to manufacturers to be melted into their goods. The need for pure refined metal should naturally decrease as scrap flows increase.
The same is true for Chinese smelters, which have been able to increase production by 2.6% so far this year thanks to strong import flows of mined concentrates. Which are up 9.1% year over year through August.
The demand for metal from the rest of the globe hasn’t decreased as a result.
How Copper Manufacturing affects China?
China’s appetite for imported copper is unquenched.
Increased imports between June and August had no effect on the exceptionally low 36,897 tonnes stock level on the Shanghai Futures Exchange. Accordingly, the Shanghai futures curve is backwardated through June 2023.
The Yangshan copper premium , “a closely-watched signal of import demand, is currently assessed by Shanghai Metal Market at $98.0 per tonne over LME cash, up from a March trough of $6.50 per tonne”.
This raises the question of whether the recent increase in imports is more than just a restocking impulse.
It would appear that China’s new economy is picking up the slack in terms of copper consumption while the country’s old economy is faltering.
Headline manufacturing indicators show. That China’s in factory activity has decreased as a result of ongoing lockdowns and a sluggish residential real estate market.
Construction has been a major driver of copper demand in recent years. Especially in the final stages of project development when wiring and white goods are installed. Construction has been one of the main drivers of Chinese economic growth in recent years.
Copper cannot escape the weakness coming from the real estate market. But the new economy, in the form of grid spending and electric vehicle sales, is offering a potent counterbalance.
Copper Uses in Global Era
In August, new energy vehicle sales more than doubled year over year. Which is driving a broader recovery in China’s automotive output.
According to Citi, grid spending, which slowed down in the latter half of the previous decade. Is picking up steam again, increasing 11% year over year in the first eight months of 2022. “China grid spending had another solid month.” September 23, 2022
According to Goldman Sachs analysts, the increased demand for green products is entirely compensating for the decline in demand for classic economy drivers like real estate. August 22, 2022, “Copper: Tightening into a Slowdown“
Beijing plans to quadruple grid spending over the next five years and has set a target of 25% adoption of electric vehicles by 2025.
China’s copper customers are encouraged to refill physical units at present prices in large part due to official signals of increased investment in decarbonization.
In China, the future promise of copper’s use in the global energy revolution is becoming a reality.