Chinese copper demand
Chinese copper demand has been the key driver of copper prices for more than a decade now. China’s slowdown has been the major factor driving copper prices to levels unseen since the global financial crisis of 2008–2009. Several analysts were expecting a recovery in Chinese (MCHI) copper demand in 2H15. But forget about a recovery. Chinese copper demand seems to be getting worse.
Chinese copper demand estimates
Goldman Sachs, which holds a bearish view on copper prices, estimates that Chinese copper demand will be flat this year compared to last year. However, according to China’s state-backed research agency-Antaike, Chinese copper consumption is expected to rise 5.7% year-over-year in 2015. Earlier this year, Antaike expected Chinese copper demand to rise 6.3% this year. According to Reuters, citing He Xiaohui, senior analyst at Antaike, “2015 forecast could be cut further to below 5 percent in December if appetite for the metal did not show signs of improving.”
On the other hand, according to the ICSG (International Copper Study Group), China’s apparent copper demand is expected to be flat this year. In its report, the ICSG says that other agencies expect “real” Chinese copper demand to rise 3%-4% this year. The ICSG also adds these demand forecasts have been revised downwards from April when real Chinese copper demand was expected to rise 4.5%–5% in 2015. Please note that apparent demand is real demand plus any change in inventories. Real demand tends to be higher than apparent demand when there’s inventory destocking.
Southern Copper (SCCO) expects Chinese copper demand to rise 3% this year. Freeport-McMoRan (FCX) said during its 3Q15 earnings call that “consumption in China continues to increase, admittedly at a much lower rate.” Together, Freeport-McMoRan and Teck Resources (TCK) form ~0.75% of the iShares North American Natural Resources ETF (IGE).
In the next part of this series, we’ll look at some of the recent indicators for Chinese copper demand.