Chinese copper imports remains robust

The preliminary Chinese customs data for December show a small 2%m-o-m decline in unwrought copper imports to 344.6kt, while scrap imports climbed 10.3% m-o-m to 430 kt in December, says a base metals report from Standard Bank.

Accoridng to the commodities report from Standard Bank, while the scrap figure is likely to have been inflated, as participants looked to bring in material ahead of the removal of the VAT rebate - the 50% rebate on the 17% VAT was ended on January 1st - the numbers nevertheless continue to paint a solid picture in terms of Chinese demand for the metal.

Looking at total imports on a 12-month MA basis, what is clear is that total copper imports stabilised over 2010, peaking at the highs seen in early 2008 before drifting back, as the re-stocking activity of 2009 faded during 2010 and gave way to de-stocking.

Of note however, after declining sharply during late 2008 and again in late 2009, scrap imports, as a percentage of total imports (not including concentrates) have picked back up again, recovering back towards the 55% level and offsetting falling refined/unwrought imports.

With concerns over Chinese monetary tightening continuing to hang over the market, and with the week-long Chinese New Year holidays due in early February, Chinese participants may well look to delay any significant purchasing activity, particularly given current high prices.

However, assuming 2010 represented a year of de-stocking by Chinese consumers, even with conservative growth projections and recognizing the potential for further de-stocking activity, 2011 will likely see total Chinese copper imports increase once again. Whether refined imports shoulder the burden however really depends on the scrap market.

While scrap availability is improving, it will be interesting to see if scrap imports can climb back towards the 70% level they occupied through 2005-2008. If scrap supply can’t take up the slack, then the emphasis will once gain fall on the refined market, supporting prices and seeing global stock levels decline.

Base Metals
The base metals had a volatile but ultimately inconclusive end to last week, with the complex absorbing the disappointing US nonfarm payrolls and subsequent volatility in the currency markets, before coming under pressure towards the close. The base metals have continued to drift lower heading into Monday afternoon, with weaker Chinese equities setting the tone overnight. Turnover remains pretty subdued, with the market seemingly in wait and see mode during the commodity index re-weighting period and ahead of US trade.

Aluminium has been the busiest of the base metals, in terms of turnover, so far, although this perhaps highlights just how quiet copper has been in comparison. Aluminium has come under steady pressure heading into the afternoon, with concentrated bouts of selling seeing prices trade below $2,500. Also weighing on sentiment was a 100 kt inflow of metal into the LME warehouse at Vlissingen.

Big inflows and outflows of metal are more commonly associated with the US warehouses rather than in Europe, with the move taking some by surprise. Whether the material is related to a financing deal, or any of the proposed metal ETF’s is uncertain.

Meanwhile, China’s imports of alumina jumped 50% m-o-m in December, albeit still falling by 16% y-o-y for 2010 as a whole.

With the Chinese alumina market seeing domestic production capacity increase dramatically, the market is in a state of flux, with imported alumina increasingly fulfilling the role of swing supply. The rebound in imports in December may have been due to the impact of power curbs in some regions, however, with fresh capacity expected to open up this year, the overall trend for alumina imports to China is likely to fall further, albeit with demand for bauxite likely to continue rising.