Copper Demand Is ‘Weak’ in China Due to Lackluster Consumption from Power Industry

Monday, Mar 08, 2010

Copper demand in China, the world’s largest consumer of the metal, is “weak” because of lackluster consumption from the power industry, Tongling Nonferrous Metals Group Co. said.

“From what we learned from our customers, copper demand is now weak,” Chairman Wei Jianghong said today in an interview in Beijing. Tongling is the country’s second-largest copper smelter. Demand “isn’t very strong,” Li Yihuang, chairman of bigger rival Jiangxi Copper Co., also said today.

Slowing demand in China may indicate stockpiles in the country may continue to climb after reaching the highest level in more than seven years in February. Goldman Sachs Group Inc. last month ended its recommendation to bet on higher copper prices because of concern that economic recovery in developed markets isn’t on “solid footing.”

“About 60 percent of copper is used in the power industry, and our sales to wire-and-cable users reflected that demand is rather weak,” Wei said, while attending the National People’s Congress.

Copper futures in Shanghai rose 0.8 percent to 59,870 yuan ($8,770) a metric ton. Copper imports by China advanced to a record last year, driving global prices up 140 percent.

“The demand is not very strong in the first place,” Jiangxi Copper Chairman Li said in Beijing while at the congress. “But a lot of people have long positions in the market, so I think in the first half of this year, copper prices will be good.” A long position is a bet that prices will rise. Jiangxi Copper is China’s largest producer of the metal.

Stockpiles

Copper stockpiles jumped to 149,478 tons for the week ended Feb. 26, 28 percent more than the week ended Feb. 12, according to the Shanghai Futures Exchange.

Demand from China for global supplies may weaken because prices on the Shanghai Futures Exchange are now close to those in London, discouraging arbitrage trading, Goldman Sachs analysts said in a Feb. 24 report.

Tongling Nonferrous is seeking to buy copper assets in other countries, Chairman Wei said, without disclosing details. Tongling and China Railway Construction Corp. last December offered C$679 million ($659 million) for Canada’s Corriente Resources Inc. to gain copper resources in South America.

Jiangxi Copper is also seeking investments and has been collecting information about Zambia, Congo and other African countries, Li said.

“Overseas investments have always been our target,” Li said. “Africa is very promising.”

Buying Spree

Chinese companies spent a record $32 billion on resource acquisitions last year to feed the world’s fastest-growing major economy, buying assets from oil fields in Nigeria to coal and metal mines in Australia, Asia and South America.

Jiangxi Copper is now in talks to acquire Yantai Penghui Copper Industry and another copper producer in Shandong province in China, Li said. The company has copper resources totaling 16 million tons, including projects in Afghanistan and Peru, Li said.

Production at the Aynak mine in Afghanistan, in which Jiangxi owns a stake, will probably start from 2013 or 2014 instead of 2012, Li also said. Initial geological studies on the project weren’t detailed enough and more work needs to be done, he said.

Li also said Jiangxi Copper Corp., the listed unit’s parent, is planning to double sales by 2015 by developing lead and zinc smelting, and rare earth projects in China.

 

Source: Business Week