CHINESE factories are baulking at paying record copper prices, delaying orders for the metal and cutting production as their customers recoil from more expensive products.
The metal’s rapid ascent to an all-time high above US$11,000 a tonne on the London Metal Exchange this week is causing ructions in the domestic supply chain, from the smelters that refine copper ore, to the producers of goods from solar panels to home electronics.
Linking the two are the fabricators that shape refined metal into rods, pipes, wire and foil. Henan Yuxing Copper, a smaller firm in central China that makes copper pipes for use in items such as air-conditioners, is one of the firms struggling to pass on higher costs to its customers.
“Our sales orders have fallen about 20 to 30 per cent in May, the traditional peak season, from the previous month – something we have never seen in so many years,” said Hai Jianxun, a sales executive at the company.
Copper’s rally has been propelled by deepening concerns over a global shortage of a metal deemed crucial to the energy transition. But China’s faltering economy, where factory-gate prices have fallen for 19 straight months, is poorly placed to absorb the increase. Consumer prices, meanwhile, have shown only minimal growth in recent months, suggesting that cash-strapped households are likely to resist more costly purchases of items that use copper.
Chinese fabricators produce over 30 million tonnes of copper products a year, according to Shanghai Metals Market (SMM). In a survey covering most of that volume, firms are expected to cut run rates to 66 per cent of capacity this month, from 68 per cent in April, SMM said. That’s the lowest for the season since at least 2017. In another survey by Mysteel Global, which looked at 28 copper rod plants covering nearly a third of the nation’s fabrication capacity, more than 60 per cent of producers had cut or halted production due to slowing sales.
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It’s a sign that copper’s barnstorming rally has run ahead of consumption in its biggest market. As demand evaporates, inventories are rising, with stockpiles at warehouses monitored by the Shanghai Futures Exchange hitting the highest-ever level for the time of the year.
Rebound hopes
“Some fabricators have even asked to delay term supplies of refined copper after their warehouse product inventories ballooned,” said Wang Yingying, an analyst with Galaxy Futures. Some smaller ones are facing liquidity issues after betting that copper prices would fall, she added.
Still, demand could return if copper prices slip a bit, said Henan Yuxing’s Hai.
“Orders might rebound in June or July if copper can fall below 80,000 yuan a tonne,” he said, referring to prices on the Shanghai Futures Exchange, which closed on Wednesday (May 22) at 84,260 yuan a tonne, or more than US$11,600. Chinese prices are higher because they include tax.
Others are less hopeful. Fabricators are not accepting higher prices right now, but eventually they will have to take them, said Galaxy’s Wang. And that will mean lower profits for factories and their customers. BLOOMBERG