Fri, 08/20/2010 - 14:25
GUEST COLUMN: Copper industry roundup of H1 of 2010 and outlook for H2
By Zhao Bo, deputy director of China Nonferrous Metals Industry Association's (CNMIA) copper department, and Zhou Zunbo, a CNMIA assistant.
According to CNMIA statistics, China output approximately 2.26 million tons of refined copper, 532,400 tons of copper concentrate and 4.77 million tons of copper products in the first half (H1) of 2010, up 16.7 percent, 25.52 percent and 17.92 percent respectively. Copper product output shows a strong tendency towards seasonality, and each of the first six months of 2010 saw year-on-year growth. This is mainly due to increased production capacity.
Despite the rise in copper output, and the continuous rise in revenue for major businesses, profits decreased on a monthly basis. This comes as a result of a low sulfuric acid price and low smelting fees. Prime operating revenue for the top 20 copper and nickel producers reached RMB 206.34 billion ($30.4 billion) in H1, up 98.45 year-on-year. Profits also increased year-on-year, up 65.77 percent to RMB 5.59 billion ($823.46 million). In June, however, these 20 companies saw profit drop 3.43 percent month-on-month to RMB 974 million ($143.48 million).
Looking at the country's imports, we can see that refined copper imports in the first six months remained high, despite falling by 11.72 percent year-on-year to 1.59 million tons. This is due to the fact that in the same period of 2009, low copper concentrate prices pushed refined copper imports unusually high. Copper product imports, meanwhile, were up 34.81 percent to 467,900 tons and copper concentrate imports grew by 8.21 percent to 3.34 million tons. Scrap copper imports in the six month period totaled 2.03 million tons, up 16.85 percent annually but lower than those in the first six months of 2008. This comes as a result of the [central] government's strengthened regulations for scrap copper imports, which pushed production costs up. Crude copper imports also increased, up 99.8 percent to 171,400 tons. This rise can be attributed to the cancellation of value-added tax (VAT) on the gold content of crude copper imports which came in November 2009.
As for exports, refined copper exports in the first six months of 2010 increased by 185.76 percent to 18,000 tons. Copper products exports stood at 263,900 tons, an increase of 28.7 percent from 2009 but again lower than those in 2008. Among these copper products, copper foil exports saw the highest volume with 107,500 tons, up 78.05 percent year-on-year. Copper tube exports decreased by 8.62 percent to 881,000 tons as a result of America's preliminary anti-dumping duties imposed on China-made copper tube imports.
There are a number of problems facing China's copper industry. Firstly, there is the issue of excessive supply. As we can see, China's copper imports and exports in the first half of the year were very strong. Market consumption is currently fairly weak, however. According to International Copper Study Group (ICSG) statistics, there will be an excess of around 580,000 tons of copper in 2010, and so copper prices are unlikely to rise in H2.
Falling copper treatment and refining charges are another major issue. Tight copper concentrate supplies on the international market, combined with an expanding domestic copper production capacity that pushed up demand for raw material, has ensured that copper smelting fees have continued to remain low since the beginning of the year. This has been very damaging to a number of copper smelting companies.
China's imports are likely to take heavy hits in H2. The Chinese government cancelled export tax rebates for certain copper products as of Jul. 15, while the US is to levy an anti-dumping duty on China-made copper tube and pipe imports. As a result, we should expect to see declining copper product exports in the second half of the year.
The final major problem is that of the low price of sulfuric acid. While it did bounce back somewhat, it ultimately remained low in the first half. The average price of this refined copper production byproduct stood at around RMB 400 ($58.92) per ton in H1, while in Northwestern China it hit a low of RMB 100 ($14.73) per ton. This made it even harder for copper smelters to make a profit.
As for the second half of the year, the price of copper is likely to be volatile. Copper is now featured as a financial commodity and so is highly sensitive to changes on financial markets like the stock market. The status of the economy, therefore, will ultimately determine the price of copper in the second half of 2010. While it is expected that China's economic growth rate will slow in the following several months, the country's macroeconomic environment is showing itself to be fairly stable, and so the copper price will rise accordingly.
The problem of market surplus will also remain unresolved. Looking at 2010 as a whole, refined copper output is expected to reach over 4.5 million tons, copper concentrate an estimated 1.1 million tons and copper products approximately 9.2 million tons. Consumption is likely to decline, however, as a result of the 25 percent year-on-year decrease to power grid investments [the electricity industry is a high copper consumer].
The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.
