Jiangxi Copper Co. (358), China’s biggest producer of the metal, is considering halting exports to London Metal Exchange warehouses after prices declined 9 percent in the past month.
“We’ll look at the prices and other commercial considerations,” Su Li, president of Jiangxi Copper’s trading unit, said today by telephone from Shanghai. “We are still fulfilling our existing contracts to export.”
Jiangxi Copper, along with most producers in the China Smelters Purchase Team, agreed to export the metal to bring down cash prices and help lower domestic stockpiles, Su said on May 2. Copper for three-month delivery has fallen 11 percent on the LME since then amid concern of an economic slowdown in China and the unresolved debt crisis in Europe.
“The conditions under which they decided to export no longer exist now,” said Xiao Jing, an analyst at Beijing Capital Futures Co. “The backwardation has fallen significantly, and at the same time prices have slid, so their short positions should have been unwound as well.”
The China Smelters Purchase Team, which also includes Tongling Nonferrous Metals Group Co. and Yunnan Copper Industry Co. (000878), usually represents smelters in annual discussions with miners on processing fees.
Export plans “should be suspended given that prices have fallen,” Pan Qifang, Jiangxi Copper’s board secretary, said by telephone today from Jiangxi province. “If there are price differential opportunities, then we’ll definitely do it.”
Chinese smelters use imported copper concentrates, which are priced based on LME cash rates. Copper for immediate delivery was settled at a premium of $149 a ton to the contract for delivery in three months on the LME on April 27. The widest so-called backwardation since 2008 has diminished, and changed to a discount of $7 yesterday.
Yunnan Copper Industry Co., which is part of the China Smelters Purchase Team, hasn’t exported any of the metal because it doesn’t have the permit, Yang Wenjun, securities representative for the Kunming-based company, said today by telephone. Calls to the office of Wu Heping, spokesman for Tongling Nonferrous Metals Group Co. (000630), weren’t answered.
“While there are still significant short positions held on the LME by Chinese smelters, the case for exports staying at significant levels is fading, given that LME backwardation has moderated,” Barclays Plc (BARC) analysts Gayle Berry and Nicholas Snowdon wrote in a report dated June 7. Copper cathode exports from China will probably be 50,000 metric tons in June, following the same amount in May, they said.
Copper inventories stored at LME-registered warehouses in South Korea, the nearest LME delivery point to China, jumped to 58,550 tons as of yesterday, compared with 11,725 tons at the end of February, according to data compiled by Bloomberg.
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