Strong Chinese demand supports copper prices and boosts local aluminum prices

Demand for copper and aluminum in China has been surprisingly strong despite the country’s real estate crisis, driven by orders from the home appliance, electric vehicle, solar and wind sectors.

This has helped support otherwise weak copper prices around the world, and pushed up aluminum prices in the world’s largest consumer of metals, according to traders, analysts and producers.

For example, Chinese production of copper-intensive appliances, such as refrigerators and air conditioners, grew by double digits in the first eight months of the year. And in September, factory activity grew for the first time in six months.

“Copper has a clear story: demand is quite strong, despite problems in the real estate market“, it states Dan Smithhead of research at the brokerage Amalgamated Metal Trading (AMT).

A Chinese copper smelter declared that its stocks have been reduced to half of what is usual at this time of year.

“After the recent drop in the price (of copper), the purchase volume has increased“, declared an official from the foundry, whose clients include tube manufacturers and companies in the renewable energy sector.

Even in China’s battered real estate sector, property construction grew 19% between January and August. Both copper and aluminum are used in this phase of home construction.

Chinese stimulus aimed at property market has boosted copper demand, he said He Tianyua Shanghai-based analyst at consulting firm CRU Group.

“We do not believe that construction this year or next will have bad results”he added.

CRU has forecast that Chinese copper consumption, including refining and scrap, could grow 5.7% this year, down from 1.8% growth in 2022.

However, rising supply, weak global demand and a strong dollar caused by high interest rates could keep copper prices in check until next year, according to analysts.

Copper was trading at US$7,995 a metric ton at 0757 GMT, down 4.5% so far this year. Prices reached US$9,550.50 at the beginning of the year.

But other Chinese property data does not predict strong metals demand growth in the longer term.

Housing construction in China fell 24% in the first eight months of the year and has followed a downward trend since July 2021. Properties under construction fell 7% in the same period and have been in negative territory since May 2022.

The data from COMEX showed that net short positions on copper jumped to 77,276 contracts through September 26, the highest since March 2020, when COVID-19 began to spread.

“We remain cautious about the near-term outlook for copper, with China remaining a key source of caution“said the analyst ING Ewa Mantheypredicting that copper prices LME They will average US$ 8,582 per ton in 2023.

Aluminum demand in China has been boosted by strong growth in solar energy installations, which have increased almost 160% so far this year, and demand has also come from ultra-high-speed electricity transmission lines. high voltage and electric vehicles, Citi analysts wrote.

While aluminum futures prices in China have soared to 15-month highs and posted 8% growth so far this year, London benchmark prices have seen a 6% drop.

“The demand is bad, very bad”said an aluminum trader who sells to markets outside China.

The Japanese aluminum shipment premium for October-December plunged 24% from the previous quarter, the European premium fell to its weakest level since April 2021, while the US premium hovered around its lowest level since early 2021 .

“Aluminum prices, in the near term, will remain volatile as market attention will focus on the broader macroeconomic picture, with weakening global growth weighing on aluminum demand“Manthey said of ING.

Manthey expects prices in London to average $2,283 a ton this year, up from $2,244 currently.

However, Smith, AMTexpects aluminum prices in London to rise due to strong demand and limited supply growth in China.