China challenges global copper squeeze with near-record production

(Bloomberg) — The global copper market is gripped by fears of a shortage, which has sent prices to record highs and sparked a $49 billion takeover battle. But in China, the world's largest producer and consumer of refined metal, there is more than enough to go around.

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At the center of this conundrum are the country's ever-expanding copper smelters. The industry is maintaining production at near-record levels – defying a shortage of raw materials – as higher prices free up more scrap metal to be processed.

Smelters had pledged to cut capacity after their rates fell due to a supply shortage on imports of the ore they use as raw material. The prospect of a copper shortage in China is just one of the pillars supporting a meteoric rally that took the metal above $11,000 a tonne for the first time early last week. But these cuts have not happened and China's faltering economy is unable to absorb the surplus.

The mismatch between supply and demand has become more glaring in recent days, with prices retreating to just above $10,300 per tonne. While this still represents a 21% gain for the year, it suggests that as long as China remains in surplus, copper will struggle to advance further.

Read more: Chinese factories back away from record copper price

The availability of scrap metal from discarded pots, pipes and wires increased rapidly after copper prices soared, said Liang Kaihui, a Shanghai metals market analyst. Manufacturers have been busy turning this metal into blister, a semi-processed version of the metal, and shipping it back to smelters, he explained, where it is used as a substitute for the overseas ore that is now rare.

Scrap's abundance is reflected in its discount to refined copper, which rocketed to 4,615 yuan ($637) a tonne last week, the highest in at least eight years, according to SMM.

The foundry industry, meanwhile, continues to increase its capacity. As long as they are profitable, individual companies prefer to defend their market share at the expense of margins. Local governments also want them to continue producing the metal so they can meet their economic growth goals and maintain employment levels.

On the string

China's PMI surveys for May will likely show the manufacturing sector continuing to grow at a modest pace, supported by strong output, according to Bloomberg Economics.

The story continues

Ten years ago almost to the day, while inspecting a handful of luxury sedans from one of China's largest automakers, SAIC Motor Corp., President Xi Jinping delivered a pivotal speech that would put China on the path to dominating the electric vehicle industry.

Chinese industries are considering asking authorities to open an anti-dumping investigation into pork imports from the European Union, the state-run Global Times newspaper said, citing information from a “business insider.”

China's engagement in the global trading system has been sharply criticized by Group of Seven finance chiefs, in a show of unity accompanied by a threat of further escalation.

This week's newspaper

(All Beijing times unless otherwise noted.)

Monday May 27:

Tuesday May 28:

Wednesday May 29:

• CCTD weekly online briefing on Chinese coal, 3 p.m.

• SHPGX Hosts Day 2 of China Gas Energy Forum

Thursday May 30:

Friday May 24:

• Official China PMIs for May, 9:30 a.m.

• Weekly iron ore stocks in Chinese port

• Shanghai Exchange Weekly Commodity Inventory, ~3:30 p.m.

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