China's physical demand for copper has been picking up after months
of softness. Upstream producers, traders and semi-fabricators alike saw a
seasonal pick-up in sales and utilization rates, with last week’s
sell-off last triggering buying interest, stated a recent market
analysis by London based Barclays.
However, several market participants pointed out that while a demand
recovery is undoubtedly under way, it is still more moderate than boom
years in the past, and they are worried that steady demand growth may be
outweighed by improving supply.
Several weeks after the end of the Chinese New Year, copper wire,
cable, rod and foil demand is better, and semi-fabricator utilisation
rates have increased.
Demand from tube makers, who benefit most directly from sharply
higher white goods sales, was the most robust, but wire and cable
producers have also begun to see orders from the gridcos, Barclays
added.
Demand still varies depending on region; southern China seems to be
seeing a slow start after the holidays, while eastern China is seeing a
faster rebound.
Smaller factories also have a less positive outlook, as they are the
most disadvantaged in an industry characterized by overcapacity.
Spot prices finally traded at a premium to nearby future prices on
the SHFE after months of trading at a discount, indicating rising demand
for spot material, but some traders observed that demand was coming
more from traders than factories and that the actual loadings of
material has not come close to usual peak-season highs in the past.
The sell-off, which saw LME 3-month copper prices drop by more than
3% early last week, triggered mild restocking interest from physical
buyers at $7,500/t, but consumers do not yet have the conviction to
carry larger stocks.
Rod makers Barclays spoke with indicated that they fixed the pricing
on roughly 2.5 weeks of their copper needs during the sell-off, but they
estimate that current sector-wide inventory is still at 1.5-2 weeks of
use, slightly lower than the historical average.
Trading houses also reported a spate of pricing requests by
their physical clients during the sell-off. The chance to secure
material at lower prices ahead of the traditional peak season helped
find a floor under prices, but consumers still appear cautious and
large-scale restocking is yet to occur.
Financing demand for copper, which turns copper into credit for
cash-strapped businesses or profit-seeking investors, is still alive,
but those involved in the trade painted a less active picture despite an
improvement in price ratios that favour such imports.
On the one hand, those involved in financing saw a steady level of
interest in opening new letters of credit (L/Cs) for copper imports in
order to sustain a flow of short-term financing for some businesses.
On the other hand, many also said that it is now very difficult to
obtain L/Cs from banks in certain locations, such as Wenzhou city in
Zhejiang province, because banks in those locations perceive more risks
from this practice.
Last week it was reported in a national newspaper that the banking
regulator in Shanghai asked banks to adopt more oversight on commodity
financing and establish additional risk control mechanisms.
While those engaged in copper financing can find ways around
restrictive policies, for example opening L/Cs in regions with more
relaxed oversight, increased attention from regulators may constrain the
growth of this type of demand.
In addition, effective lending rates for small businesses has also
been trending down modestly in the past month, suggesting somewhat more
accommodative monetary conditions that could reduce incremental demand
for financing.(http://www.commodityonline.com/news/china-copper-demand-picking-up-barclays-53602-3-53603.html)
Gold prices are expected to trade within the range from 29850 to 29450, one can trade within the range.