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18Jul2011

Copper May Extend Rally to Record on China Demand

Posted by Copper Connects TeamNo Comments
Copper may rally to a record $12,000 a metric ton in the first quarter as stronger-than-expected demand from China, the largest user, and tumbling inventories spur imports, according to Maike Futures Co.
“If Chinese imports don’t pick up in the second half, there will certainly be a serious shortage,” Ren Gang, head of Maike’s research department, said in an interview. “Destocking is nearing the end.” The brokerage’s affiliate Xi’an Maike Metal International Group Co. trades up to 500,000 tons of metals and minerals a year, according to the company’s website.
Higher demand from China may extend a 49 percent rally in London copper prices amid expectations for global consumption to exceed supply. Imports of copper and products by China rebounded for the first time in three months in June after stockpiles tumbled 38 percent from this year’s high. Increased government investment on infrastructure projects and affordable housing may also boost demand.
“Besides the traditional demand from power grids, development of high-speed railways, subways, wind and hydro power plants add more demand,” said Wang Jun, an analyst at metals researcher Beijing Antaike Information Development Co.
Total investment in the power sector may surge 66 percent to 5.3 trillion yuan ($820 billion) in the 2011-2015 period from the previous five years, said Wang Qiankun, a researcher at the State Grid Energy Research Institute. That investment may require 25 million tons of copper, Wang said. The power industry accounted for half of China’s copper consumption in 2010, according to Antaike.
Price Gains
“I expect copper to touch $11,000 in the fourth quarter, and maybe $12,000 in the first quarter next year,” said Maike’s Ren. Three-month copper on the London Metal Exchange gained 0.2 percent to $9,694.25 a ton at 10:20 a.m. in Shanghai. It reached a record $10,190 on Feb. 15.
Based on downstream growth, copper demand in China could rise by almost 20 percent this year, said Ren. Still, the high price may damp consumption and trigger substitution, paring the increase to 10 percent, Ren said.
Copper consumption may grow 6.5 percent to 6.7 million tons this year, Standard Bank Plc said in a report on July 12. Demand may expand by at least 8 percent, said Cai Jinrong, a researcher at metals trader Wanxiang Resources Co. The global market faces a deficit of 377,000 tons in 2011, according to the International Copper Study Group.
China’s gross domestic product rose 9.5 percent in the second quarter, exceeding economists’ median forecast of 9.3 percent, after a 9.7 percent rise in the first quarter. Industrial output advanced 15.1 percent in June, the most since May 2010.
Housing Investment
China is on track to grow about 9 percent, boosted by local government investment, said Chang Jian, an economist at Barclays Capital. The expansion last quarter came even after the central bank boosted lending rates five times since mid-October and lifted bank reserve requirements to a record.
“Affordable housing starts will help China achieve a soft- landing this year, while at the same time providing space for demand expansion next year,” Ren said.
The nation started building more than 5 million units of affordable housing as of the end of June, exceeding half of the government’s full-year target, and more than 4 million units are expected to be completed within the year, Xinhua News Agency reported on July 14.
Imports Rebound
The world’s largest metals and minerals consumer imported 1.7 million tons of unwrought copper and products in the first half, 24 percent lower than a year ago, according to the General Administration of Customs. Imports rose 10 percent in June from the previous month to 280,009 tons as buying from overseas became profitable and supply tightened.
Bonded warehouse inventories of copper are expected to fall by 450,000 tons this year from about 600,000 tons at the end of March, according to Ren’s estimates. About 400,000 tons of refined copper and products will be bought from commercial warehouses, according Ren.
Inventories at the Shanghai Futures Exchange-monitored warehouses were 109,461 tons last week, compared with this year’s high of 177,365 tons, according to the bourse data.
To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net
SOURCE: Bloomberg

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