Consumption of refined copper in 2019 could increase by around 3%

Chinese expert Li Lan expects a growth in the consumption of red metal during this year in the Asian country, driven mainly by the strong production of air conditioning and the demand for power cables and transformers, supported by spending on infrastructure. It also ensures that with the ban on imports of category 7 waste, China will enter more clean high-grade waste.

Li Lan is managing director of BGRIMM Lilan Consulting and has 20 years of experience as a copper analyst and consultant. Its extensive trajectory allows it to carry out a detailed analysis of what is coming for the Chinese market during 2019, a year that although it is expected to bring a very weak increase in the demand for refined copper, could face downside risks due to the deterioration of the conditions in the housing industry, the growing commercial friction and weaker domestic demand.  

In an interview with Cesco, the consultant refers to the projections of the industry in 2019, the impact on imports of both cathodes and copper concentrates and the changes that the ban on scrap imports will bring.

What was the growth in copper consumption in China in 2018, a year of lower growth in GDP?

China’s copper consumption increased by around 6% in 2018, slightly lower than GDP growth (6.6%), but even so it was higher than we expected. The largest production of air conditioning equipment in the first half of 2018, a better investment in infrastructure since mid-2018, exports beyond expectations boosted by early shipments to the US. before the additional import tax and the lower scrap offer are the main factors that supported copper consumption in 2018.

What are your expectations for 2019, both for GDP and for copper consumption?

Consumption of refined copper in 2019 could increase by around 3%, while GDP growth should be around 6%. The large inventories of air conditioning could influence the production of these during the first semester. On the other hand, the housing construction market will continue to harm housing products in the first half of 2019. Also, since many of the US 200 billion US tariff list products have been over-stored by the US importers, exports are very likely to fall moderately. However, it is expected that the improved demand for power cables and transformers, backed by heavy spending on infrastructure, compensates for the low growth in demand for manufactured and housing products. Upward risks to our forecast could come from stronger stimulus plans than expected with respect to the China-US negotiation, and more accommodative housing policies. The downside risks would come from deteriorating conditions in the housing industry, growing commercial friction and weaker domestic demand.

What impact will the above have on copper imports from China, both cathodes and copper concentrates?

In 2019, the demand for copper concentrate in China could increase by 500-550 thousand tons with the start-up of several new smelting projects, continuous increases in capacity in some recently inaugurated and expanded smelters, and lower production of some smelters that will stop for maintenance. Assuming that some 90kt of copper from additional concentrate supply could come from increased domestic mining production, imports of copper concentrate should exceed 21 million tons (gross weight) by 2019.

Regarding copper cathodes imports, with about 3% growth in refined copper consumption and higher copper production, Chinese net copper imports could decrease in 2019. However, we could see higher imports of refined copper versus higher exports of refined copper in 2019. More Chinese copper brands are being traded on the London Metal Exchange and can deliver copper to the LME warehouse in Asia or export their copper to Southeast Asia.

Do you expect any change in the role of scrap in the Chinese copper market?

With the ban on category 7 scrap imports, China will import more high-grade clean scrap or even blister. The blister can replace the scrap in the secondary semelters. Meanwhile, with a tight scrap supply, some manufacturers have used more off-grade cathodes to replace Scrap No.1.