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Can Chinese Copper Demand Support Freeport-McMoRan in 4Q16?

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Chinese copper demand

Because China is the world’s largest copper consumer, it’s important for investors in companies such as Freeport-McMoRan (FCX), BHP Billiton (BHP), and Rio Tinto (RIO) (TRQ) to keep track of Chinese copper demand indicators.

Notably, one of the factors that helped the rally in metals and mining shares this year has been the improvement in China’s economic indicators. China’s property market saw a rebound this year due to the government stimulus. However, the impact of these stimulus measures has been fading.

We have seen moderation in Chinese real estate activity after a big spike earlier this year. However, the country’s automotive sales have been strong as buyers seem to be making the most of the sales tax cut.

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Imports have fallen

While copper mining is concentrated in Latin America (ILF), more than half of the world’s copper is consumed in Asia—China is the world’s largest copper importer. Analysts see Chinese copper imports as an indicator of the country’s copper demand.

The impact of moderating copper demand is visible in China’s copper imports. China’s refined copper imports have now fallen month-over-month for five consecutive months. Although the country’s copper concentrate imports have been strong, this was accompanied by an increase in China’s refined copper exports. Higher Chinese refined copper exports put pressure on copper prices in an already oversupplied market.

In our view, Chinese copper imports could be subdued in 4Q16 as well. Subdued Chinese demand could put pressure on copper prices.

While copper demand has been weak, its supply seems to be rising. We’ll explore copper’s supply in the next article.

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