FOCUS - Chinese copper demand growth has bottomed out - Macquarie

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Meimei Qinmeimei.qin@fastmarkets.com+442072642479

London 23/05/2016 - Macquarie expects copper to average a low $4,893 this year and does not see it returning above $6,000 until 2021, it said.

The metal remains in the high $4,000s - LME three-month copper is stuck around three-month lows, trading recently at $4,563 per tonne, down $14 on Friday's close.

It will strugge to move much higher than the low $5,000s in the second half because of weak sentiment despite a tighter market balance, the bank said in research note.

On the demand side, the bank raised its copper demand expectations for 2016 to 2.4 percent from 1.3 percent on stronger industrial conditions in China.

"This is the first time we have put through an upward revision for a couple of years," it said, adding that this reflects the solid second-quarter rebound in the market after a major credit injection in the early part of the year.

"The Chinese government knew exactly what medicine to give the patient to get it up and moving," it said, referring to the country's rapid credit growth feeding through to a boom in property sales and increase in construction.

Macquarie also believes that Chinese bureaucrats now feel more pressure from the government to make progress in infrastructure projects. Many have been delayed due to interference from corruption probes although this trend has slowed since the end of 2015.

"Overall, Chinese copper demand growth seems to have bottomed at last," it said.

But supply is also outperforming, with mine disruptions just a third of normal levels in the first four months of 2016, the bank pointed out.

Overall treatment and refinement charges (TC/RCs), the discounts on the copper price paid to smelters for the costs of processing concentrate into refined metal, rose to $87-97 per tonne/8.7-9.7 cents per pound for clean, standard-grade material, up $11/1.1 cents from mid-February, reflecting improved concentrate availability.

Meanwhile, the Chinese import arbitrage window closed while domestic stocks rose, leading to falling CIF Shanghai bonded premiums. Spot copper cathode premiums hit $40-50 per tonne CIF Shanghai early in May, the lowest in more than three years, resulting in cathodes moving from China to LME-listed warehouses in Asia.

"We think that this rebalancing was necessary, as LME stocks were sinking to extreme lows while SHFE saw record volumes in March," the bank noted. "However, the market has taken a bearish signal from the adjustment and prices have suffered."

In the longer term, the bank sees a substantial deficit arriving at the end of the decade as mine attrition finally overwhelms lacklustre demand.

"We believe copper takes longer to get back to$6,000 per tonne," the bank said, forecasting an average price of $6,175 in 2021.


(Editing by Mark Shaw)



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