China to see steady recovery in copper consumption in H2

Asian Metal: Mr. Shi, thank you very much for accepting our interview. Would you please first give us a brief introduction of your company?

Mr. Shi: Located in Futian District, Shenzhen Sinoking Technology Co., Ltd. is a comprehensive service provider engaging in the trading of commodities, including nonferrous metals like copper, aluminum, lead and zinc as well as mineral products. In 2020, our company provided specialized and quality professional services for industry giants such as Zijin Mining, Jiangxi Copper, Henan Jinli and Guangxi Jinsheng, with whom we established stable partnerships based on mutual trust. Copper is currently our most important business sector, which involves domestic trading of copper cathode, copper rod and so on, as well as the import of copper raw materials such as copper ore and blister copper.

Asian Metal: What is the business development plan for the company? Apart from trading, would the company consider investing in mines or copper entities?

Mr. Shi: In term of the future development plan, our domestic trading business has been relatively mature, and we would like to expand import business resources and channels by taking advantage of our shareholders' capital strength, while maintain our current businesses. We currently import copper concentrate and blister copper, and we may also consider importing copper cathode and copper scrap in the future. For investment in mines, we show interest in a Philippines-based mining company which we have done business with, and when the pandemic winds down, we would arrange an on-site visit before making the final decision. About copper entities, we initially planned to build copper scrap processing plant in Southeast Asia, but the plan has been put on hold for the moment as China eased on standards for importing copper scrap starting November 1, 2020. But if there are right projects and when risks are controllable, we would still consider investing in overseas assets, especially ports, warehouses, mines and processing plants involved in commodity trading.

Asian Metal: Chinese copper market failed to show traditional peak-season performance in April-May period damped by the high copper price. Do you think the second of this year would see a strong recovery in copper consumption from domestic end users?

Mr. Shi: As copper price surged to a historic high of around RMB77,000/t (USD11,881/t) in April-May period, downstream copper processing plants became much less active in purchasing and most of them were mainly clearing their stocks, leading to the relatively weak consumption compared with previous years. However, after China released national copper reserves into the market, coupled with a modest shift in U.S. monetary policy, copper price retreated to RMB70,000/t (USD10,801/t) in mid-June when downstream consumers were obviously more active in purchasing, along with the decreasing social inventory of copper cathode. But given that copper price still stays at a relative high level and the spread of COVID-19 variants leads to uncertainties about the real economy, we believe the second half of 2021 would see a modest recovery in domestic copper consumption.

Asian Metal: TCs for copper rod are relatively low amid white-hot competition in the industry. What is your company's business model for trading copper rod and how do you make profits?

Mr. Shi: Given the transparency of competition, TCs for copper rod Ф8mm were once as low as RMB300-400/t (USD46.29-61.72/t) in southern China, nearing or even dropping below the production cost. Under the current market conditions, there are two things we, as traders, can do to break the bottleneck for TCs. One is that we adopt consigned processing mode, in which we cooperate with copper rod plants to do processing and at the same time purchase imported copper cathode with up-to-standard quality but relatively low price to enter the market with low-cost advantages. The other is that, for downstream consumers, we transfer pricing power to buyers and nest supply chain finance service to flexibly serve the market in order to gain operating profits.

Asian Metal: Domestic smelters now hold relatively sufficient stocks of blister copper, anode plate and other cold burdens, with TCs for spot blister copper once above RMB2,000/t (USD309/t) delivered. What do you think are the reasons for the situation? Will TCs slip in Q3 and Q4 this year?

Mr. Shi: Firstly, China Customs eased on import quotation for copper scrap this year and the country's copper scrap imports from January to May surged by 85.4% YOY to 760,000t. Meanwhile, the supply of domestic copper scrap also increased significantly amid high copper price and domestic blister copper and anode plate producers held sufficient raw material stocks and thus greatly ramped up production. Secondly, undeveloped countries, especially some African countries, launched a number of copper smelting projects out of consideration for primary manufacturing and to promote local employment, which led to the release of capacity of cold burdens such as blister copper and anode plate. As the transportation capacity recovers with the pandemic winding down, the supply of imported blister copper and anode plate also increased to some extent. Given the sufficient supply but smelters' limited consumption capacity, TCs for blister copper are expected to stay above at least RMB1,600/t (USD247/t) delivered in Q3 and Q4 2021.

Asian Metal: As overseas mine production and shipments are disrupted by the pandemic, while the demand in China remains strong, TCs for imported copper concentrate once dropped below USD30/t in H1 2021. Do you think the tight supply situation will continue till the end of this year? Will TC top USD60/t again?

Mr. Shi: Many new large mines and expansion projects became operational overseas from this June, and with the pandemic gradually under control, the production and shipments from mines in major copper concentrate producing countries began to stabilize. So we believe the tight supply of copper concentrate would gradually ease. In addition, major smelters in China reached an agreement in May to cut purchase volume of imported copper concentrate by 1.26 million tons before the end of this year. Against the backdrop of more supply and less demand, TCs for imported copper concentrate gradually climbed up and exceeded USD40/t in late June. However, in light of the still relatively strong demand from domestic smelters, coupled with uncertainties over the global copper ore supply, we reckon that TCs for imported copper concentrate are unlikely to top USD60/t before the end of the year but might climb up to around USD55/t.

Asian Metal: What's your opinion on copper price movement before the end of this year?

Mr. Shi: From the demand side, copper demand from new energy sector would increase significantly against the backdrop of global carbon neutrality and peak emission goals, and copper consumption by NEVs would be four times that of traditional fuel vehicles. In addition, more copper will be consumed for household car chargers and public charging stations. According to the forecast by relevant authority, copper demand from new energy sector would increase by more than 2 million tons this year. In term of the supply side, although global new and expansion projects successively became operational over the past few years, the increase in copper supply still fails to catch up with expansion of smelting capacity, and would not keep pace with the sharp increase in global copper consumption after the pandemic is under control. Furthermore, given that copper has relatively strong financial attribute, we believe that copper price is still likely to rise to around RMB80,000/t (USD12,344/t) before the end of year against the backdrop of global monetary high, especially in the case of the ongoing quantitative easing in the United States.