FOCUS - Chinese H2 copper demand seen weaker after H1 power grid spending focus

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 25/07/2016 - China’s copper demand is likely to wane in the second half of this year after power grid investment in the country was concentrated in the first half of this year, analysts said.

China’s strong copper imports and the rebound in copper prices in the first half were driven by the outperformance of power grid investment, Barclays Research said in report on Monday. 

Chinese power grid investment rose 33.3 percent year-on-year in the first half of this year, compared to a 0.8 percent decline in the same period last year, it noted.

“With inventories during this period rising but not swelling to unreasonable levels, the import data are a strong argument for an internal copper economy that is growing and has accelerated from the near-collapse in the second half of 2015,” Barclays noted.

Chinese unwrought copper and copper alloy imports totalled 2.47 million tonnes in the first half of this year, up 25.6 percent from the same period last year.

Outside of power investment, data remained mixed and weak. Washing machine and automobile production were both positive growing 6.5 percent and 6 percent year-on-year respectively in January-June and beating their previous years’ performance.

But other consumer sectors such as air conditioner production was down 4.9 percent, AC motor production softened 6.2 percent, and refrigerator production fell 3.9 percent in January-June. All growth rates are on a year-on-year basis.

“Reading it all together, we interpret the results as evidence that while China’s copper sector has held up so far this year, its recent strong performance is dependent on one sector and, thus, particularly vulnerable,” Barclays said.

If China’s grid investment slows, no other sector in the consumer economy seems ready to pick up the loss momentum, it argued.

“Given the stochastic nature of China’s grid investment versus the budget, we think it likely that the recent level of high investment will slows in the second-half, adversely affecting copper demand,” it said.

China’s Galaxy Futures also raised similar concerns. The Beijing-based headquartered futures brokerage said in Monday report that it found that orders among domestic copper fabricators have declined significantly following a visit to these firms last week.

“In addition, considering the cooldown in the real estate market and that photovoltaic power grid spending were concentrated in the first-half, there is a high possibility of copper demand declining in the second half which will put downward pressure on copper prices,” the report said.

Some market participants also noted China's strong copper production in the first-half could add to supply pressures in the second half.  

The weak demand in the market, coupled with rising production in the country, has raised concerns that the copper market will remain in oversupply, China’s Dalu Futures also said in a report last week.

China’s refined copper output was at 4.03 million tonnes in the first half of this year, up 7.6 percent from the same period last year.

The Shanghai Futures Exchange September copper contract was last at 38,150 yuan per tonne on Monday, down 30 yuan from Friday's close.



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