* China not expected to lift brakes on property sector this
year
* Demand growth seen at 4.8-4.9 pct vs 6.0 pct last year
* Bonded inventory levels not seen falling before mid-year
By Eric Onstad and Veronica Brown
LONDON, April 24 (Reuters) – Growth in Chinese copper demand
is due to dip this year as the government seeks to cool a
booming property sector and erosion of bonded stockpiles is
unlikely before mid-year, the country’s top investment bank
said.
Consumption growth of copper in China, which accounts for 40
percent of global demand, is expected to slow to 4.8-4.9 percent
from 6.0 percent last year said Janet Kong, managing director of
research at China International Capital Corp. (CICC).
Construction is the biggest copper consumer in China,
accounting for a fifth of demand, but the government is not
ready to lift the brakes on a sizzling housing market that had
threatened to become a bubble, she added.
“We don’t think the government will loosen the policy on the
property sector for a year,” Kong told Reuters in an interview
in London.
In addition, the government’s aim to boost consumer demand
will change the composition of economic growth, which has
already resulted in less usage of copper per unit of growth.
“Starting from last year we think that intensity declined
and we think it’s going to continue in line with how China GDP
as a growth driver will change,” she said.
“So this is the second year that we think compared to last
year the growth rate will decelerate further. But it’s not the
end of the world… construction is the major user of copper but
it’s not the only one.”
SLOWER RECOVERY
Copper inventories in bonded warehouses in Shanghai,
estimated to have more than doubled since late last year to
600,000-650,000 tonnes, will only begin to erode by mid-year or
in the third quarter, she said.
“If you look at last year, bonded warehouse inventories
started to come down when Chinese buyers needed to buy more,”
said Kong, who was with Goldman Sachs before joining CICC.
“(In 2012) this should be somewhere in the latter part of Q2
or even Q3. Recovery will be slower and take longer to be
manifested in falling stock levels.”
Demand is sensitive to prices, however, and Chinese buyers
will shy away if the market gets carried away, she added.
London Metal Exchange (LME) benchmark three-month copper
futures rallied to a high of $8,765 per tonne on
February 9, up 22 percent since mid-December, but prices have
since retreated to around $8,000 per tonne.
If overseas investors bid up prices like they did in
January, Shanghai buyers will not chase the rally,” Kong said.
“If prices remain at a relatively low level and demand does
gradually pick up, exhausting the onshore inventory, then we
have a better chance of having the arb opening up,” she added,
referring to the arbitrage between the LME and the Shanghai
Futures Exchange.
ALUMINIUM SURPLUS
The Chinese aluminium market is expected to show a modest
surplus this year as high-cost smelters delay plans to close,
after a deficit of 500,000 tonnes last year, the first in recent
history, Kong said.
China would have seen more capacity shutdowns this year if
LME prices had remained close to the lows of December under
$2,000 per tonne, but they instead rebounded to a peak of
$2,361.50 per tonne on March 3. LME benchmark futures
have since fallen back to around $2,050 per tonne.
“Given the recovery in aluminium prices, a quite impressive
one, the anticipated cuts did not materialise… this year we
think China will have a moderate surplus, not a big one.”
Many state-owned smelters have difficulty closing down due
to social obligations to employees, she added.
But a global surplus in the market will be absorbed by
continued financing deals, which will help buoy prices and keep
premiums firm, Kong said.
“We’re positive on aluminium this year… we think aluminium
will be well supported. At this current level, there will be
marginal shutdowns in China, not massive ones.”
(Editing by William Hardy)
