Chinese copper imports for November were slightly higher than the previous month, but were up 31% year-over-year (Chart 1). That news sparked a rally (COMEX:HGH14) to levels not seen since this past May. In the days following the release of that data, most of the economic news out of China was on the soft side, capping the rally. Economists estimate that there will be a small decline in fourth-quarter GDP, with modest declines in factory output and slower growth in the investment and retail sectors.
The market was making the assumption that strong imports and declining inventories meant that copper and other industrial materials were being consumed by Chinese industry. Talk of weakening economic conditions therefore cast some doubt on the longevity of the Chinese buying spree.
A look at overall global fundamentals should provide further concern for bulls that the market’s strength hinges almost solely on China’s importing and might not be sustainable without it. According to the International Copper Study Group’s (ICSG) most recent report, through the end of the third quarter, Chinese implied demand was up 5.8% year-over-year, but global demand was up only 2.8%. Take away Chinese consumption, and global demand grew by only 0.6%.
Even if Chinese demand remained constant, there is another issue to contend with. Supply has been growing at a faster clip. Unlike the demand side, where the increase is concentrated in China, production growth has been widespread. Global mine output for the period was up 8.7%, year-over-year, with notable gains in the U.S., Indonesia, African producing nations, and of course Chile.
The Chilean government keeps revising up its output estimate for 2013. The most recent forecast calls for an increase of 5.7% over 2012, but year-to-date monthly data indicate that output is growing at an even faster rate of 6.5%.