Why copper demand in China is skyrocketing

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    Why copper demand in China is skyrocketing

    2009-03-03 14:10:00

    Some significant and furious activity is happening in China where Copper is concerned. This is not recent and there has been a significant rise in Chinese demand for refined Copper imports since the last three consecutive months. Imports reached a record 211,527 tonnes in December 2008, up 89 percent more than December 2007 and 49 percent higher than November 2008.

    Only last month we talked of slowing down of the Chinese economy and these rising imports of Copper dont match the growth pattern of China.

    One of the reasons for Chinas sudden rise in demand could be the result of its governments serious and wide scale efforts to ease bank lending, and hence stimulate domestic business. The requirement could be for some large scale planned project that the Chinese government has chalked and ready but awaiting funds which the governments stimulus package will provide for.

    Many believe that the 4 trillion Yuan stimulus package announced for the Steel sector is positive and will aid the steel demand recovery.

    Producers Woes

    All this slowing down and global financial crisis has now spilled to production areas as mines shut shop and everybody goes on a trimming spree. Falling demand is the reason for all this reduction.

    Cost of production for Copper is extremely low these days with the advance of technology and it is a possibility that most of the major producers are still making a small profit even in the price range of $3000 to $4000/tonnes. The supply side has been dismal and producers do not see any change in the demand scenario for sometime now.

    Cost of production has lowered but so have the profits. In fact, profits have been decreasing and given the demand situation, it is unlikely that they will rise in the near future. Most mines have cut production due to these low profits and will only continue till the sustainable levels. With falling prices and falling demand many more producers could come under the hammer.

    What do we do with so much Copper?

    The year 2008 has been full and overflowing from the brim for Copper stocks as the first 11 months the global Copper market was in surplus of 286,000 tonnes as stated by the Bureau of Metal Statistics. This has been in such contrast with the 2007 figures when the Copper stocks were with a 201,000 tonne deficit.

    The fundamentals in the market with regards to the demand and supply are likely to remain the same for sometime at least given the kind of slowdown that is seen the world over. Adding to the stockpiles is the increased refined production by 2.6 percent over the period to 16.89 million tonnes, while consumption was fractionally lower than the same period a year earlier at 16.60 million tonnes.

    The fate of copper lies in the gargantuan infrastructure expenditure programmes that United States and China has promised it would bring about and also hoping this brings about a significant rise in global demand.

    This is no miracle that would come in effect overnight and given the market fundamentals, the turnaround could take a few days, or even a few months


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