(Updates copper movement in second, sixth paragraphs.)
Jan. 26 (Bloomberg) -- Imports of refined copper by China, the largest user, will probably drop for a second year as record prices spur consumption of scrap, said Maike Futures Co.
Net purchases may decline by 4.5 percent to 2.75 million metric tons this year from 2.88 million tons in 2010, Ren Gang, head of Maike’s research department, said in an interview yesterday. They fell 7.4 percent last year. The broker is a unit of Maike Metal International Group, a Xian-based metals company which trades as much as 500,000 tons a year, its website said.
Copper had its biggest drop in more than two months yesterday, falling 2.9 percent in London to $9,250 a ton, the lowest close since Dec. 20, on concern China may take further steps to cool its economy and curb inflation. Growth of copper usage may tumble to 7 percent in 2011 from 13 percent last year, JPMorgan Securities Ltd. said. Scrap represents more than half of total consumption, Ren said.
“Demand for refined metal isn’t good with prices at all- time highs,” Qu Yi, an analyst at metals researcher CRU International Ltd., said by phone from Beijing. Scrap is more than 10,000 yuan ($1,518) a ton cheaper, Qu said.
Scrap supplies in China have climbed as rising prices made it more attractive to sell recycled material from buildings and home appliances produced in the economic expansion of the past 30 years, Ren said. Scrap imports advanced 9.2 percent to 4.36 million tons last year, according to customs data.
“Our study shows the growth of domestic scrap supplies accelerates once the refined price exceeds $7,500,” said Ren. Copper for three-month delivery climbed to a record $9,781 a ton on the London Metal Exchange on Jan. 19 and traded at $9,335 a ton at 9:57 a.m. in Shanghai today.
“As consumption grows steadily, scrap copper will be the largest variable in copper prices,” Ren said.
China’s economy expanded 10.3 percent in 2010, the fastest pace in three years, statistics bureau data show, compared with growth of 9.2 percent in 2009. After Japan reports gross domestic product for the fourth quarter on Feb. 14, comparative data may show China was the second-biggest economy last year.
In nominal terms, gross domestic product is more than 100 times bigger than in 1978, when Communist Party leader Deng Xiaoping began rolling out free-market policies. While China outstripped Germany in 2007 and the U.K. and France in 2005, the economy remains less than half as big as that of the U.S.
China has raised benchmark lending and deposit rates twice, and increased reserve requirements for banks four times in the past four months in an attempt to cool its economy. The Shanghai Composite Index has fallen 15 percent since Nov. 8.
Imports of scrap copper in terms of metal content were heading for a record in 2010 as companies sought higher quality material to cut processing costs, said Ma Xiaoxin, vice general manager of the copper department at China Minmetals Nonferrous Metals Co. on Nov. 2. Metal content had climbed to 39 percent from 18 percent to 20 percent before 2008, she said.
Substitution of copper in some technical applications, like the rollout of an optical fiber communication network in Shanghai, will also reduce imports, according to Maike’s Ren.
“Policies like this can result in a lot more scrap copper supply in a relatively short period of time,” Ren said.
A decline in imports of refined material last year may result in higher shipments in 2011, according to Peter Hickson, UBS AG’s global basic materials and commodities strategist, Jan. 18. Restocking may happen after the Chinese New Year, he said. The week-long vacation starts Feb. 2.
“Chinese buyers have stayed away from the market, mainly disturbed by the rise of copper prices, as users worked down their own stocks,” he said. Imports of copper, including the refined metal, alloy and products, were little changed at 4.29 million tons in 2010, according to customs data.
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