Copper, the second-best performing industrial metal in London this year, may extend gains in the next two months on purchases by China and manufacturers as inventories drop, China International Capital Corp. said.
The peak consumption season for the metal used in pipes and wires is coming, analysts led by Luo Wei at the country’s largest investment bank said today in a note. There is also speculation that China’s State Reserve Bureau would raise purchases to 1 million tons from 600,000 tons, they said.
Copper futures have jumped 24 percent this year in London on expectations that stimulus spending by China and other governments will boost consumption. China’s State Reserve has been buying metals after commodity prices dropped to seven-year lows, supporting domestic producers and adding to stockpiles.
The reserve’s purchases “would easily turn a global surplus of between 350,000 tons and 400,000 tons this year” into a deficit, China International Capital’s analysts said. “Copper is also set to benefit the most from the Chinese government’s stimulus plan.”
Copper for June delivery on the Shanghai Futures Exchange gained as much as 1.5 percent to 30,880 yuan ($4,517) a ton, and traded as 30,580 yuan by the 11:30 a.m. break. Jiangxi Copper Co., China’s largest producer of the metal, rose 1.9 percent to HK$7.15 in Hong Kong trading at 12:24 p.m.
China has pledged 4 trillion yuan in stimulus spending to combat slowing economic growth, and has “adequate ammunition” to add to that package at any time, Premier Wen Jiabao said March 13.
Chinese steelmakers are cutting output again after incurring losses because of falling prices, CICC, as the investment bank is known, also said. There is a “limit” for further price declines as consumption may recover from the end of March, the bank said.
Steel prices in China, the world’s largest consumer, have fallen nearly 10 percent this year on oversupply, spurring calls by Beijing’s Shougang Corp. for mills to cut output by 20 percent.
