New record monthly highs for all forms of copper imports were set in preliminary data for July from Chinese Customs, recording 1.31Mt copper content. This comfortably eclipsed the previous high of 1.14Mt in November 2019 and the impressive total of 1.13Mt in June 2020. The July numbers show a significant 16% sequential monthly rise from June and 20% surge from the 1.09Mt imported in July 2019. Year-to-date imports reached 7.4Mt in January to July, a 6.6% increase from the 6.9Mt purchased in the same period of last year.
There are complex reasons behind this growth surge, particularly the unexpectedly strong growth in June and July. Even with these in place, some of the available data defies any simple rational explanation. The starting point is that China is experiencing a shortage in the raw materials needed for its smelting and refining industry. Its refined output rose 4.7% to 5Mt in H1 2020 according to official statistics, mainly due to the ramp up of new capacity. Yet imports of concentrates, the primary raw material feed for smelters, have barely increased this year due to the impact of COVID-19 on mine output in Peru, Panama and Chile. Purchases of anode and blister have risen substantially (+19%), but not as much as Chinese buyers would have liked due to production disruptions in the African copper belt and temporary closures at South African ports.
Faced with these restrictions in primary raw material supplies, Chinese buyers would ordinarily turn to secondary raw materials to fill the void. However, the scrap market has proved to be the most vulnerable part of the supply chain due to the impact of lower prices, COVID-19 operating restrictions, and transport and logistical problems. Moreover, China’s new import regime for scrap materials, re-designating them as “renewable resources” which was meant to be implemented on 1 July, will not now come into force until at least September, and perhaps even later, according to industry sources. As a result, several of the world’s leading container shipping lines have said they will no longer accept scrap cargoes destined for China after 1 September, fearing liability for return shipment if these cargoes are rejected by customs authorities. China has more than doubled its imports of secondary ingot to partially compensate for the halving of its scrap purchases but even so, Roskill calculates that it was still short of around 300kt (copper content) of secondary raw materials in Jan-July 2020, compared to the same period of 2019.
Sources: Global Trade Tracker, China Customs, Roskill
Roskill believes this 300kt deficit in secondary supplies is one of the main factors explaining the 675kt surge in Chinese refined imports to 2.6Mt in Jan-July 2020. Fabricators have replaced scarce scrap with the plentiful cathode no longer needed in the Western World’s COVID-19 ravaged markets. This business has been facilitated by the world’s major trading houses who have been active cathode buyers, from producers hard hit by falling sales to industrial users. An underlying improvement in end use demand, occasional arbitrage opportunities, restocking, stockpiling and speculation, must all be contributing to this urgent demand for refined metal in China. What else could explain refined imports of 494kt in June (+128% y-o-y) and Roskill’s estimate of 590kt in July (+98% y-o-y).
To place this in its proper global context, China has imported more refined copper in the past two months than Germany – the world’s third largest consumer – used in the whole of 2019. For the copper market, the main legacy of COVID-19 will have been to expose scrap as the “Achilles heel” of the global supply chain. It has been instrumental in contributing to the incised V-shaped rebound in prices and, as Roskill maintains, this rally has further and longer to go. China’s appetite for the red metal is undiminished. It is continuing to siphon the international market of copper in all its forms and, as far as China is concerned, the world cannot supply enough.
Roskill will present its latest views on the copper industry in its upcoming webinar: Explaining the rapid copper price recovery in the wake of COVID-19 which will be held on 26 August 2020. Roskill will provide insights into what the future may have in store for copper, taking findings from its NEW Copper Demand: Outlook to 2030, 2nd Edition report, due to be published in October 2020.