Weak Near-Term Outlook for Copper Demand from China
I maintain that this scale of weakness is already priced into the major copper equities at these levels, but with the fundamentals completely off the radar screen of investors at present, that may not protect them from further declines on revelations like this. This is getting demoralizing. :(
On the other hand, I think there's a solid chance that these copper brokers are underestimating the copper demand that the stimulus plan will likely rescusitate.
UNCERTAIN GLOBAL ECONOMIC OUTLOOK Bearish Codelco cuts copper premiums to China by 32 percent
With Chinese consumers seemingly gloomy on 2009 domestic demand, the world's largest copper miner has cut its term premiums to the Chinese market to $75 a tonne.
Author: Polly Yam
Posted: Thursday , 20 Nov 2008
HONG KONG (Reuters) -
Chile's Codelco, the world's top copper producer, has slashed term premiums for refined copper to China by 32 percent to $75 a tonne in 2009, amid weak demand in the world's biggest copper market, traders said on Thursday.
"The cut shows Codelco's bearish outlook on the copper market," a Shanghai-based trader for an international trading house said.
The premium was in line with expectations, after Codelco made similar cuts for customers in Europe.
Chinese buyers paid term premiums of $110 a tonne over cash copper prices on the London Metal Exchange MCU0 for refined copper produced by Codelco in 2008, down 15 percent from 2007's $130.
Codelco has also reduced term premiums to buyers in South Korea and Japan by 35 and 36 percent, respectively, to $64 a tonne and $65 a tonne. Its term premiums to Europe have fallen by 30 percent to about $80 in 2009.
Copper prices MCU3 have fallen 60 percent from a record high in July as the global economic slowdown has slashed demand, and have nearly halved since the start of the year to $3,565 a tonne on Thursday.
The grim outlook for global economic growth and demand for industrial metals has led to substantial downgrades to forecasts for average prices next year. [ID:nLJ638200]
CHINA DEMAND OUTLOOK GLOOMY
Chinese copper buyers are bearish on domestic demand next year due to falling consumption for copper goods from both domestic and overseas markets, despite the Chinese government's plans to boost investment in infrastructure projects.
This will likely see Chinese merchants trim term orders for 2009 copper imports as they look to increase spot business.
"I think $75 is a bit high, given people have expected economic data to be bad in the fourth quarter. The situation in the first quarter 2009 should not be good," said a manager at one large trading house that is a Codelco client.
He added the uncertain economic outlook globally was making Chinese copper buyers cautious in placing orders for 2009.
"We are also not sure about the lending policy of banks, given the global financial crisis," the manager said. He was referring to letters of credit, which copper buyers use to fund purchases and which banks have been more reluctant to hand out as credit conditions tighten.
A trader at a large Chinese trading and investment house told Reuters the firm was assessing next year's demand outlook for copper in China and had not concluded 2009 term volumes with Codelco.
"China does not have much demand for copper now. Falling demand is caused by the weak global market," a senior manager at a Shanghai-based trading firm said.
To see a factbox on Codelco's premiums to China, click on [ID:nHKG351045] (Additional reporting by Alfred Cang in SHANGHAI; Editing by Michael Urquhart)