London 16/03/2016 - Chinese copper consumers are bearish on demand for the metal 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, they said.
Some major copper tube manufacturers in the country are braced for lower orders in the second quarter compared with last year.
"Operating rates at copper tube works are OK but orders for March are down almost 10 percent compared with the same period of last year," a copper tube source in China said. "For us, 2016 could be the worst year since 2014… copper prices will not find support from the fundamentals."
Operating rates at some copper product factories in China have also declined - the overall rate is around 70 percent, down from 80 percent last year, sources explained.
"We still have a long way to go to consume high stocks of home appliances such as air-conditioners and fridges," a second consumer added.
Despite some reports of increased orders in March from February, this probably reflects the timing of Chinese New Year earlier this year. An overall year-on-year downward trend looks to be in place.
Buying at copper rod and copper product manufacturers is hand-to-mouth and restocking has not emerged, a third consumer said.
Many cite high air-conditioner stocks as the main reason for the slow recovery in copper demand.
"We are very pessimistic on consumption in the domestic market. We see orders for air-conditioners down 15 percent in March on a year-on-year basis due to high stock levels," an end-user said.
"Although sales to overseas market proved to be encouraging in the first quarter, the domestic market is really disappointing. It was the worst year since I've been in the industry for 11 years and copper prices might sink to new lows," he added.
And unless the government issues sales-supportive stimulus measures, orders are likely to fall further next month, he added.
As well, the recent rally in property prices in China's Tier 1 cities in China such as Beijing, Shanghai and Shenzhen is not believed to be sustainable and will not trickle down to Tier 2 or 3 cities.
And the boom in Tier 1 cities may be a bubble, reflecting financing rather than real demand while other sectors offer less promising yields amid looser monetary policy, some sources suggested.
The People's Bank of China (PBoC) and China Banking Regulatory Commission (CBRC) announced stimulus measures in early February including a fall in the down-payment for mortgages to 25 percent, dropping to 20 percent in cities that do not have restrictions on housing purchases.
"[But] even with stimulus measures like that, destocking will remain the main theme for property markets this year," the end-user said. "The increase in Tier 1 cities was mostly for second-hand flats, which do not need to buy new air-conditioners."
"We will have to wait for at least six months for it to feed into demand for air conditioners, ultimately for copper tube, which would be late in the third quarter," he added.
As well, China's State Grid Corp lifted investment in the country's power network by 11.74 percent to 460.2 billion yuan ($70.55 billion) in 2015 and aims to invest 2.3 trillion yuan ($352.6 billion) in 2016-2020, according to local reports.
But it is by no means certain that higher investment will equate to increased demand for copper cable for electricity transmission purposes.
"It's true that absolute investment in the state grid has increased year-on-year for electricity transmission, which would support copper demand," the end-user said.
"But, if you look closely, the money they spend on the state grid was mostly on ultra-high-voltage for which they use aluminium either alone or reinforced with steel. It has nothing to do with copper… we should not read too much into it," he added.
(Editing by Mark Shaw)