China stays key to copper demand: Standard Bank

CAPE TOWN, South Africa — Global copper consumption is expected to grow 1.2% in 2012 to reach 20,349 million metric tons, with China accounting for the bulk of the demand. Within China, the health of the construction sector will be the main risk to copper demand, delegates to the 18th Investing in African Mining Indaba were told.

Standard Bank Group's Head of Commodities Research Walter de Wet, head of commodities research for Standard Bank group, told a forecast session that the demand for copper is unlikely to be strong enough to support prices above $9,000/mt for most of the year.

Copper is a base metal of choice for most investors and speculators and its price generally offers great insights into how traders view the global economic outlook, bank officials noted.

De Wet told delegates that China will still be the most important factor as far as global demand for copper in 2012 is concerned. He said China's demand, which has been growing on average by 15.1% per year since 2000, was expected to increase by 6.6% in 2012.

While China is the driver of global copper consumption, he expects the US and Europe to also be important centers of copper demand and in both cases they are expected to contract.

Noting sensitivities of copper demand to industrial production, De Wet said he expected the European need for refined copper to decline from 4,008K mt in 2011 to 3,827K mt in 2012. For the US, a decline in demand from 2,490K mt in 2011 to 2,440K mt this year is expected.

“We basically say forget Europe,” he said. “Not that Europe is not important, but in the bigger scheme of things when you break down the copper market and you look at where growth is coming from you should not be concerned about Europe.”

De Wet noted that LME and Shanghai inventories have been declining and Chinese refined metal imports have been strong recently. But Shanghai spot premiums have come under pressure in recent weeks indicating a lack of strong real demand. De Wet said the bank expects imports into China to slow in the next few months as physical demand remain lacklustre.

He said the bank has low supply side expectations, noting that mine supply has consistently fallen short of expectations since 2001. The lack of an adequate mine supply response will be a a key pillar of support for copper in 2012, he said, adding that the bank did not expect copper to cut into the cost curve in 2012.

"China should once again account for the majority of copper refined consumption growth in 2012. Understanding Chinese copper demand and potential weaknesses are crucial in understanding copper," he said.

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