Copper Falls as China Ups Copper Exports

China’s imports fell to 17-month low while exports jumped 76% from a year ago

Source: LME
Source: LME

Copper prices at the London Metal Exchange (LME) plummeted to five-week lows on Monday, August 22nd, 2016, after China, the world’s biggest producer and consumer of refined copper, slashed imports to the lowest level in 17 months amid low-season demand and rising domestic production. On the other hand, Chinese exports jumped 76% from the levels seen in June 2016, according to China’s Customs General Administration and as reported by Bloomberg on August 24th, 2016.

Copper also slid because of rising global inventories and the dollar strengthening ahead of a key meeting of U.S. Federal Reserve officials on Friday, August 26th, 2016, in Jackson Hole, Wyoming, and on prospects of a Fed interest rate hike. A stronger dollar makes dollar-denominated commodities like copper more expensive for non-U.S. entities. Benchmark copper on the LME edged down 1% to $4,748.5 a ton on August 23rd, 2016.

China unleashes copper exports

c2Exports of unwrought copper and copper products from China jumped to 75,022 tons in July 2016, which was more than a five-fold rise from 14,937 tons in July 2015, from 42,596 tons in June 2016. Refined copper output in China rose to 722,000 tons in July 2016, the highest in at least five months, from 686,000 tons in June 2016 and 664,000 tons in July 2015, government data showed last week. Production jumped 7.9% during the January-July 2016 period.c3

On the other hand, China’s copper imports fell for a fourth month to 251,235 tons in July 2016 from 305,304 tons in June 2016 and 259,733 tons a year earlier, the lowest since February 2015, according to China Customs. Imports fell on lower demand and as smelters stepped up production after increases in margins. Still, imports were 20% higher during the January-July 2016 period compared to the year-ago period.

The slowing import of copper, used majorly in the power and construction sectors, points to a saturation in the Chinese market, where supply growth is seen to be stronger than demand growth. c4Markets are waiting for other data relating to China’s manufacturing sector, due on September 1st, 2016, to help assess the prospects for industrial metals demand. In the wider markets, prospects for further dollar strengthening also created headwinds for aluminum, lead, tin and zinc on the LME, pulling down their prices.

Traders said stocks of copper in LME approved warehouses, which rose by 18,750 tons to 229,375 tons in July 2016, were also undermining sentiment and that a break below the 200-day moving average at about $4,722 could trigger a larger sell-off.

China under pressure to remove export duties

In recent months, China has been under pressure from the U.S. and other countries to remove export duties on certain minerals that give it an unfair trade advantage. When China joined the World Trade Organization (WTO) in 2001, it had agreed to remove duties ranging from 5% to 20% on antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum, and tin. However, over the years, China has failed to remove export duties, saying that they are in tandem with WTO rules. However, these export duties make the minerals cheaper in China and more expensive when exported, putting foreign buyers at a disadvantage, as reported by The Wall Street Journal. With the LME now flooded with Chinese copper, it remains to be seen whether the Chinese government will reduce its inventories to rebalance the market glut.

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