China isn’t self-sufficient when it comes to raw material needs. It’s the world’s largest copper consumer. China needs to import raw copper for its smelters and refining plants. While copper mining is concentrated in Latin America (ILF) (ECH), more than half of the world’s copper is consumed in Asia. China is the largest importer of copper ores, anodes, and refined copper. Miners such as Freeport-McMoRan (FCX) and BHP Billiton (BHP) depend on China’s metal demand. To cater to China’s copper demand, Rio Tinto (RIO) is expanding the Oyu Tolgoi mine (TRQ) in Mongolia.
Chinese copper demand
Analysts track Chinese copper imports closely, as they offer crucial insight into the country’s copper demand. So far, in the first seven months of 2016, China has imported 3.1 million metric tons of copper products, a year-over-year (or YoY) increase of more than 19%. However, imports have declined on a monthly basis for four consecutive months now. Furthermore, July imports are at their lowest level since August 2015.
Imports of copper ores and concentrates, which are further processed in China, have also risen 35% YoY in the first seven months of 2016. Imports have been on an uptrend as can be seen in the graph above.
Is all well?
Looking solely at the YoY increase in China’s copper imports, we get a somewhat optimistic picture of China’s copper demand. However, it’s important to note that copper imports have to be backed by end user demand. Otherwise, copper would keep stockpiling somewhere in the supply chain.
So are Chinese copper imports being used by end users or is there more than meets the eye? We’ll explore this in detail in the next part of the series.