Beijing may throw shaky copper markets a lifeline if it rolls out a stimulus package for its flagging economy, but some analysts now fear weak metals demand growth may persist far longer than many reckon.
Data on Friday showed that implied copper demand in the world's top consumer remained anaemic into July, rising just 2 percent from June, while year-to-date growth of only 5.8 percent, is much lower than expectations at the start of the year. Many analysts abroad, looking at the Chinese economic juggernaut, still anticipate quicker growth as industrial activity resumes following the Olympics and buyers restock.
But many consumers in China and a number of analysts say the risks to that scenario are greater than estimated. Even indications this week that Beijing may relax credit controls and pump more money into the economy to offset the impact of slowing export demand on domestic growth failed to dispel a sense of gloom over demand.
"The policy change would help domestic demand, but that will not be sufficient to offset reduced export orders," a purchasing manager at Kangqiang Electronics, a copper strip user, said.
A manager at fabricator Tai-I copper said there were no signs of rising export orders and the firm's sales were 15 percent lower than expected this month. He added that the company may reduce copper purchases next month. Merchants selling physical copper to China also said business was quiet with no signs that demand will rise soon.
"We don't have consumers beating a path to our door right now," a physical trader said. "We are seeing more activity in Shanghai now than when prices were higher, but I think this is people pricing material than buying fresh tonnages of physical metal."
Shanghai copper prices have dipped to below 56,000 yuan in the past 10 days, down from a two-month high of 64,830 yuan in July. But traders in Shanghai noted end-users had bought copper at below 60,000 yuan a tonne to cover existing orders. Another trader said copper was continuing to leave bonded warehouses in Shanghai.
"That doesn't signal a rise in demand any time soon and we certainly won't be expecting a bounce any time soon, but I am cautiously optimistic beyond October." Many copper fabricating plants in Guangdong were operating at, or less, than 50 percent capacity, although the rate may rise to about 70 percent in the fourth quarter, Jing Chuan, chief researcher at Great Wall Futures in Shanghai, said.
STIMULUS BOOST Beijing's tight credit policy and reduced export orders that trimmed productivity in the export-driven economy, caused China's second consecutive fall in economic growth rates in the second quarter to 10.1 percent, compared with 11.9 percent in 2007.
With officials worried that a sharp fall in economic growth could raise unemployment and undermine social stability, Beijing seems to be considering loosening its long-running tight credit policy and considering other measure to boost the economy. Vice-Premier Li Keqiang said this week there was a need to boost domestic demand in order to maintain growth and minimise the impact of economic weakness abroad.
J.P. Morgan Chase said in a note this week China's leaders were considering an economic stimulus package of at least 200-400 billion yuan, equivalent to 1.0-1.5 percent of GDP, and may ease monetary policy by the end of the year. "Relaxing controls will help the current weak demand which is mostly depressed by tight credit," Zhou Jie, Shanghai-based analyst at China International Futures said.
"Copper demand in the fourth quarter will be better than the third quarter. I am quite confident about this." But analysts warned that a fiscal package may not be the cure-all that Beijing is hoping for. "Sentiment is more important than a few hundred extra yuan in your pocket," MF Global analyst Edward Meir said. "Fiscal stimulus packages don't always work the way governments intend. The US scheme, for example, gave things a little boost but its effect has since fizzled."
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