Singapore 01/04/2016 - The output cuts pledged late last year by 10 major Chinese copper smelters have had a limited effect on domestic supply and prices so far this year, market participants said.
At an industry conference in Shanghai last month, a Tongling Nonferrous Metals official affirmed that the 350,000-tonne-cut among the Chinese producers will be achieved this year. His presentation showed that five of the 10 smelters have already made plans to cut a total of around 260,000 tonnes from their 2015 production totals.
Tongling Nonferrous itself plans to cut 50,000 tonnes this year while Jiangxi Copper's targeted output this year will result in an 83,500-tonne decline in production.
But industry participants polled by FastMarkets see no sign of tightness in supply at all in the first quarter of the year, they said.
Many also continue to cast doubts on whether the cuts have been or will be carried out in full, citing a lack of details on when and how the production cuts will be made and pointing out that smelters are still making profits at current copper prices and treatment and refining charges.
"It is not realistic for them to cut production if they are still making money," a Shanghai-based trader said.
The Tongling Nonferrous official also conceded that, even with a cut of 350,000 tonnes, China's total production is unlikely to fall this year because new projects and expansions outside the 10 smelters will probably make up for the shortfall.
The cuts by the 10 smelters will probably be offset by around 400,000 tonnes per year of new capacity start-ups this year, an official from one of the smelters also told FastMarkets
"New capacity will be started up by other smelters this year. So why should the 10 smelters cut production and let others take their market share? I don't see much production cuts happening in the first half at all," a Shanghai-based copper analyst said.
China's refined copper production rose 7.3 percent year-on-year to 1.28 million tonnes in January-February, the latest data shows.
While the growth rate has slowed by 8.4 percentage points on the same period last year, the increase in copper output remains high compared to other metals sectors such as aluminium and zinc, a Beijing-based metals analyst said.
China's electrolytic aluminium output fell 7.7 percent to 4.55 million tonnes in the first two months of the year while zinc production decreased 2.2 percent to 940,000 tonnes. Producers of the two metals also announced production cuts last year.
Widespread output cuts in the domestic aluminium industry since the second half of last year has lifted the Shanghai Futures Exchange aluminium price by around 25 percent since late-November.
In comparison, the SHFE copper price is so far up just 12 percent over the same period.
"Also judging by the amount of copper concentrates that are still being imported into China, I don't believe there is any bite in the announced cuts," the Beijing-based metals analyst said
China's copper ore and concentrate imports surged 57.6 percent year-on-year to 2.63 million tonnes in January-February.
Supply remains ample in the domestic market judging by the high stock levels in the country, a second Shanghai-based trader said.
Visible stocks, evident from Shanghai Futures Exchange warehouses, have reached historic highs and there are another 550,000 tonnes of copper stocks sitting in bonded warehouses in Shanghai, he said.
"Time is needed to digest these stocks," he added.
While copper stock levels at SHFE sheds have declined over the past two consecutive weeks, at 368,725 tonnes as of April 1 they remain close to all-time highs
Q2 SENTIMENT CAUTIOUS
Market participants remain cautious and uncertain about demand in the second quarter although it is typically the peak period for demand in China.
"There is demand from downstream users but we expect demand to remain flat in the second quarter compared to the first," the first Shanghai trader said.
Feedback from different downstream users has so far been mixed as well, making it difficult to ascertain if demand has picked up yet, industry watchers said.
"We may need to wait till mid-April - then we'll really be able to tell if demand has improved," the Shanghai copper analyst said.
Chinese copper consumers have told FastMarkets that they are bearish on demand for copper this year, with most expecting no growth - sluggish sales of cars and air conditioners and a moribund property sector will offset increased state grid spending.
Continued difficulties in obtaining credit and funding from banks are also expected to check downstream users' spending this year, traders added.
(Additional reporting by Meimei Qin, editing by Mark Shaw)