FOCUS - Chinese consumers optimistic on Q4 copper demand, market brightens

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Vicky Chenvicky.chen@fastmarkets.comPhysicals Reporter+44 (0) 20 7337 2141

London 19/09/2016 - Consumers in China are positive on domestic copper demand growth in the fourth quarter, with the local property market picking up pace and robust buying from state grid sectors due to China's urbanisation process.

Copper tube output has rebounded so far in the fourth quarter of 2016 after reduced or zero growth in the first three quarters, several sources said.

"Operating rates have also increased in September and the growth rate of our orders will be around 15 percent year-on-year in September," a major copper tube producer told FastMarkets. "It is encouraging but growth on a yearly basis will be more or less around one to two percent."

Destocking in air-conditioning units and other white goods has continued steadily over the past three quarters while high temperatures over this summer have boosted buying.

"Stocks levels have dropped quite significantly over the past quarter… we expect 2016 sales for copper tube to increase 10-20 percent year on year," a copper tube producer said.

Stocks of air-conditioner units have plunged to 32-33 million in September from more than 40 million units in mid-May due to hot weather in most cities in China, several source said.

"Production of new air-conditioner units has also increased in response to the rapid drop of stock levels," a downstream copper consumer said. "The usual demand lag between a booming housing market and air conditioners is around 6-12 months so we have started to feel the push now."

A jump in housing prices in first-tier cities mostly reflects sales of furnished apartments but this trend has widened to second- and third-tier cities where sales of new builds have accelerated.

Policies such as purchase controls or higher down-payments in second-tier cities underscore booming demand in Hangzhou, Suzhou, Xiamen and Nanjing, for example.

Output of air-conditioning units is seen growing at around 20-30 percent in the fourth quarter. Still, some sources played down the magnitude of this increase given lower base number in the last three months of 2015 and after 70 percent of production targets were hit in the first half of this year - growth in the fourth quarter accounts for only a small proportion of the annual figure.

Growth in orders for copper cable is seen at around 2-3 percent in the fourth quarter due to increased demand from the state grid.

"In September, our orders will grow at around 15 percent and rates in the fourth quarter will be around 5 percent. The average will be less as we are one of the major players and we also take orders from some of the smaller ones who are financially disadvantaged," one copper cable producer said.

While a copper wire producer agreed that total orders have grown during the current quarter, some of its customers have asked to postpone delivery, he said.

"I guess that's mainly due to financing problems," he added. "If those are solved, demand is pretty decent in terms of orders."

Consumption of copper rod was moribund in July but orders are expected to pick up in the fourth quarter.

"We see five-percent growth on a year-on-year basis in September and overall growth in the fourth quarter of around two percent," a copper rod producer said.

The darkest period for the Chinese copper industry now passed and a recovery is in the making, many agree. But any drop in or removal of government stimulus either in the property sector or the state grid could kill off the momentum for 2016, they also warned.


(Editing by Mark Shaw)



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