china to boost stockpilesChina Copper Purchases May Trigger Deficit, CICC Says (Update2)
By Helen Yuan and Glenys Sim
March 18 (Bloomberg) -- Copper purchases by China to boost stockpiles may flip the global market from surplus into deficit this year, boosting prices already underpinned by stimulus spending, according to China International Capital Corp.
China’s State Reserve Bureau may raise purchases to 1 million metric tons from 600,000 tons, analysts led by Luo Wei wrote today in a note. The purchases “would easily turn a global surplus of between 350,000 tons and 400,000 tons this year” into a deficit, they wrote.
China’s largest investment bank, known as CICC, joins Macquarie Group Ltd. and BOC International Co. in suggesting China may take advantage of the slump in copper prices triggered by the global recession to build up holdings. Copper has gained 25 percent in London this year after losing 54 percent in 2008.
“China’s State Reserve buying has been one of the main reasons for copper prices being so resilient this year,” said Cai Luoyi, chief analyst at China International Futures (Shanghai) Co. “If they really buy so much, it may well reduce the global surplus.”
London Metal Exchange copper for delivery in three months rose as much as 1.1 percent to $3,841 a ton, before trading at $3,820 a ton at 2:34 p.m. Singapore time. The contract advanced to $3,862 a ton yesterday, the highest since Nov. 14, after China’s imports of the metal jumped 55 percent in February.
Surplus Forecasts
GFMS Metals Consulting forecast in a report earlier this month that the global copper surplus may reach 622,000 tons this year. Goldman Sachs JBWere Pty said in February that it expected “all of the base metals to record surpluses in 2009.”
A telephone call by Bloomberg News to the State Reserve Bureau in Beijing was answered by an official who declined to give his name. He wouldn’t comment on copper purchases.
“Copper is also set to benefit the most from the Chinese government’s stimulus plan” and the start of the country’s peak construction season after the winter, CICC’s analysts said.
The world’s third-largest economy has pledged 4 trillion yuan ($585 billion) in stimulus spending to combat slowing economic growth and has “adequate ammunition” to add to that package at any time, Premier Wen Jiabao said March 13. Building work in China accelerates from March amid warmer weather.
China may buy 700,000 tons of refined copper to boost reserves to 1 million tons, BOC International analyst Belle Chan wrote in a note dated yesterday.
Slow Release
Still, should the State Reserve Bureau release the copper onto the domestic market, “it may create an oversupply in China, although they will probably do it slowly so as not to upset the market balance,” said Cai at China International.
The State Reserve Bureau may purchase a further 900,000 tons of copper this year, triple the amount it has probably already bought, Macquarie Group analysts led by Bonnie Liu wrote in a report dated March 16.
The reserve’s purchases have “just started” with total buying likely to be near to 800,000 tons over two years as long as prices remain low, Na Liu, an analyst with Scotia Capital Inc., a unit of Toronto-based Bank of Nova Scotia, said March 3.
To contact the reporters for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Glenys Sim in Singapore at Gsim4@bloomberg.net
Last Updated: March 18, 2009 02:47 EDT