JULY 15, 2009, 6:12 A.M. ET
China's Love for Copper Heats up Markets
By JAMES CAMPBELL
What's China going to do with all that copper? Move the futures markets for one thing.
The country's imports of the red metal have jumped 68% from year-earlier levels.
Stockpiling is part of the reason. Seizing upon last year's drop in prices, China's State Reserve Bureau spent the early part of this year buying. It now holds at least 235,000 tons of copper, nearly as much as the London Metal Exchange warehouses hold to back futures trading.
Arbitrageurs followed suit, after the SRB's buying helped pushed copper prices inside China well above those outside.
Deutsche Bank now estimates that factories and warehouses in the country hold as much as 1 million tons of copper in total -- equivalent to nearly a month's estimated global consumption.
And copper futures on the LME are up 63% since February.
What next? The market's already proven its susceptibility to speculation about the SRB's next move. In June, reports that the government had suddenly become a seller contributed to a sharp retreat in prices.
It doesn't help that estimates of China's stockpiles and consumption are based on slivers of information.
Bolstering the view that China has changed tack, an official from the China's National Development and Reform Commission last month said stockpiling has ceased.
But not everyone's convinced this is the case. After all, copper's still trading well below the near $9,000 a ton at which it peaked last year -- enough incentive for China to keep building its position.
And investment in power generation capacity, a recovering construction industry, and buoyant car sales may have China gobbling up its copper reserves, bulls say.
This is all creating an uncommonly wide divergence in price targets for the second half of the year. Targets now range from $3,500 a ton, a 31% drop from current levels, to $7,000 a ton, a 37% rise.
One thing is certain: It's best to be on China's side in this case.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
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