China's Rare Copper Export Boom Signals More Than Weak Demand

SEATTLE (Scrap Monster):  A rare burst of Chinese exports has deflated bull spirits in the copper market, with funds dumping long positions and prices down by 16% from the record highs seen in May.

The world's largest buyer of copper shipped out an unprecedented 158,000 metric tons of refined metal in June. First-half exports of 302,000 tons were already higher than any full calendar year since 2019.

This break of normal trade patterns has punctured a bull narrative of constrained supply and cyclical demand recovery.

Weak Chinese purchasing managers indices show that activity in the country's manufacturing sector sank to a five-month low in July, reinforcing Doctor Copper's gloomy message.

Yet demand weakness is only part of the story.

Fast-rising domestic production and a flood of African imports have saturated the local market. And then a ferocious squeeze on the CME contract in May opened an equally unusual export arbitrage window for that excess to flow out.

China produced 5.9 million tons of refined copper in the first half of the year, according to local data provider Shanghai Metal Market. That represented year-on-year growth of 6.5%, equivalent to an extra 359,100 tons.

The robust growth rate runs counter to expectations that domestic production would fall after the country's smelters committed in March to curtail output due to tight raw materials supply.

It's true that many smelters have taken maintenance downtime in recent months, but the cumulative impact has simply been a moderation of the supercharged rate of expansion.

Rising smelter output has coincided with a period of high refined copper imports.

Although the export burst has significantly reduced China's net call on the international market, the country's imports have remained strong. Volume rose by 16% year-on-year to 1.9 million tons in the first six months of 2024.

China also imported significantly more scrap copper, volume increasing by 18% year-on-year to 1.2 million tons in January-June.

Chinese demand would have had to be super-strong to absorb the simultaneous combination of more domestic and more import supply. Clearly, it wasn't strong enough.

Courtesy: www.reuters.com