China Moving on Copper Exports after Amassing 3 Million-Ton Stock

---

Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Some months ago, the question making the rounds in metals markets was "Where is all the copper?" With the benefit of hindsight, the answer to the question appears to be "Being stockpiled, mainly by China." China has not been the only stockpiler, and as warehouses carried growing stocks worldwide, major global investors expressed shock and dismay that they might be seen as speculators.

As China's official purchasing index rose to a 13-month high of 53.3 in the last month, indications were that the economy may be moving out of the dip experienced in the first quarter of the year. Allied with the signs that the U.S economy is showing signs of sustained life, both the demand for copper and the price may well move upward.

The current buyers/sellers copper price on the London Metal Exchange is more than $8,500 per ton and is estimated to be slightly more than $8,100 per ton toward the end of the year. According to the International Copper Study Group, global demand for refined copper is expected to exceed production by 240,000 tons in 2012, before it reverses a three-year trend of market deficits with a production surplus in 2013. Tight global supply this year has seen copper gain 10% in 2012 as delays hindered additional capacity feeding through to the market. New supply projects in the pipeline should come on stream over the next 12 months.

On May 1, the LME official opening stock holding was 241,550 tons of copper, which is uncannily close to the estimated supply shortfall against demand. But this becomes a mere coincidence when it is reported that 600,000 tons of the metal was held in Shanghai warehouses and was starting to be exported to international customers. Britain's Financial Times quoted research showing that 58% of the world's refined copper is now being held in China, and if strategic government stocks are included, China now holds about 3 million tons, which is an increase of 40% over six months ago. Traders say that China holds up to 75% of copper stock that is available to world markets.

The export of acquired metal stocks with the exporting country in a market controlling position is the other side of the coin to adding value to imported iron ore by making exportable products, causing resource nationalism in countries such as Indonesia, which is attempting to put up the shutters on resource exports in order to back the development of their own industrial production base.

The latest example of China's appetite for acquiring new sources of copper is the plan by the Gingko Energy Company to invest $100 million over five years to restart production at the Kilembe copper mine site in western Uganda. The Ugandan department of geological survey and mines said that Kilembe holds an estimated four million tons of ore with a grade of 1.98% copper and 1.7% cobalt. Employing its successful African strategy China has funded a number of transport and communications infrastructure projects in Uganda. In July, a $350 million toll road linking Entebbe International Airport to the capital Kampala is scheduled to start construction, which will assist in balancing Uganda's own resource nationalism.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.