China isn't self-sufficient when it comes to raw material needs, and is thereby the world's largest copper consumer. China needs to import raw copper for its smelters and refining plants. While copper mining is concentrated in Latin America (ILF) (ECH), more than half of the world's copper is consumed in Asia. China is the largest importer of copper ores, anodes, and refined copper. Miners such as Freeport-McMoRan (FCX) and BHP Billiton (BHP) depend on Chinese metal demand. To cater to China's copper demand, Rio Tinto (RIO) is building the Oyu Tolgoi mine (TRQ) in Mongolia.
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China imported a record 570,000 metric tons of unwrought copper and copper products in March. This represents a YoY (year-over-year) increase of 40%. Imports of copper ores and concentrates also rose, by 3.5% YoY to 1.4 million metric tons.
China's copper imports seem to defy any slowdown fears in the country. However, along with China's rising copper imports, the SHFE (Shanghai Futures Exchange) copper inventory and bonded copper stocks have surged. The SHFE copper inventory is near record high levels. Although the copper inventory fell slightly towards the end of March, the SHFE copper inventory has increased by more than 190,000 metric tons since the beginning of 2016. China's bonded copper stocks also rose, according to Bloomberg Intelligence, to the highest level since August 2015.
This seems to suggest that although China's copper imports are rising, they aren't backed by end-user demand. China's copper demand will be clearer when we get China's fixed investment and real estate data over the weekend.
Copper producers such as Freeport-McMoRan want China to consume more copper, rather than storing it in warehouses. A rising inventory is a ticking time bomb-if end-user demand continues to sag, we might see Chinese copper imports fall in the coming months. Unless, of course, China's State Reserve Bureau decides to stockpile more copper to enhance the country's strategic reserves.
Several theories to explain China's rising copper imports have been offered, and you can explore these in Rising Chinese Copper Imports Keep Analysts Guessing.