Chinese consumers are mixed on copper's demand growth prospects in the second half and expect any forays above $5,000 per tonne to be short-lived, multiple industry sources told FastMarkets.
Some major copper tube manufacturers have reported flat demand growth on a year-on-year basis during what is usually the peak season of the second quarter.
"Total orders are flat in May on a year-on-year basis and we expect the figures to drop in June due to fewer orders from air-conditioner manufacturers," a major copper tube manufacturer said.
"Weather conditions are one of the reasons why some air-conditioner manufacturers have delayed their purchase. Summer arrived slightly later than last year globally so they've adjusted their purchase plans," he added.
Sellers of air-conditioners and other white goods are pessimistic about sales for this year mainly due to high stock levels. One consumer source said air-conditioner sales would be 15-20 percent lower on average year-on-year.
"High air-conditioners stocks are the main cause of a significant drop in sales. Domestic stocks in the second quarter were up several million units from around 40 million units in the first quarter this year although it has not reached its all-time high from last April-May," he added.
Destocking is the main theme across the industry, with current stocks covering a year of consumption. Some agents have been forced to run levels down to free up the capital that was tied up in those stocks, he said.
"Car sales are facing the same problem as us due to high stocks. Some factories have slashed their production targets for 2016," he added.
Orders for copper rod have increased due to lower copper prices. On the Shanghai Futures Exchange (SHFE), the July contract was last at 35,510 yuan per tonne, down from 35,900 yuan on Wednesday.
"Our customers have increased their purchase due to peak-season buying and lower prices on the SHFE. We usually see a flow of purchases when SHFE prices drop below 36,000 yuan per tonne - end-users do not usually hedge and would want to take advantage," the manufacturer added.
Most buying is for consumption purposes rather than building up stocks, he believes.
Orders at copper cable and wire manufacturers have be relatively encouraging - on average, an increase of one to two percent in demand is expected, several sources said.
"Our sales for May were up 3.6 percent year-on-year while the second quarter is forecast to be up around 3-4 percent," a copper cable manufacturer said. "For us, sales have been stable in the second quarter month-on-month and we are expecting less demand growth in June."
"The fourth quarter of last year was extremely good - sales were up 25 percent year-on-year due to strong buying appetite from electric power company, resulting in a 13-percent growth in 2015," he added. "This is not something that we've seen in the past and I would expect to see the industry to be growing at around one percent for 2016."
Consumers are cautious about LME price increases because higher supply from miners would more than offset any rise in demand.
"The cash costs from some big mining companies have decreased to $3,000 per tonne due to a series of cost-reduction campaigns instead of output, which could pressure copper prices," the second consumer said.
He was bearish on prices, warning of a possible decline to around $4,000 in the second half of this year.
Counting on government stimulus in the housing market to translate into higher copper prices is wishful thinking, several sources agreed - Beijing will be cautious about providing more support.
"It seems that government have changed its attitudes towards a slower growth rate, making it very unlikely it would step up and incentivise the overheated property market," the first copper tube manufacturer said.
Government officials have indicated that central government has made it clear there will be no further stimulus targeted at the housing market this year so "any additional demand growth derived from favourable policy would be unsustainable", a well-informed source said. "It's survival of the fittest"
(Edited by Mark Shaw)