Chinese metals production boomed in August as smelters raced to take advantage of rising prices and to fill the void left by falling imports, which have started to ebb as demand elsewhere has picked up. With less import demand and more domestic production, China's role in supporting world metals prices - which it did single-handedly for much of this year - has shrunk dramatically.
China produced more copper, zinc and lead than ever before in August, although output of tin slumped. Copper imports were down for the second month in a row, falling 20 percent from July. But, at 325,098 tonnes, including alloy and semi-finished copper products as well as refined metal, the volume shipped to China was still 80 percent above its imports in August 2008.
Analysts said refined copper imports would retreat further from the record 379,000 tonnes seen in June since many Chinese users of the metal had now replenished their supplies. "We are at a point now where industrial production is very strong but many manufacturers are well-stocked and have slowed their purchases," said Ben Westmore, commodities economist at National Australia Bank.
"For the next two months we could see additional moderation in imports before a pick-up back towards the trend base around 150,000 to 200,000 tonnes." China has driven a rally in metals prices this year, fuelled by government money channelled to its stimulus plans, direct state stockpiling and a huge loosening of credit.
But the glimmer of economic hope seen in around the world in the past two months means China is no longer the sole buyer. At the same time Beijing has pulled down the shutters on its stockpiling campaign, removing a big lure for many sellers. Five months of record buying that ended in June pushed up China's copper inventories, and helped keep domestic prices below the cost of imports for much of August.
August's record production is likely to keep the pressure on local prices. "Copper smelters were encouraged by high prices, but the high output in August is likely to weigh on the market in the future months," said Li Rong, an analyst at Great Wall Futures. China's production of refined copper hit a monthly record of 364,900 tonnes in August, up 8.7 percent from July, while output of lead and zinc also leapt to new monthly records.
Primary aluminium production, at 1.122 million tonnes, was up 5 percent on the month, but still 2.3 percent off last August's high. Imports of unwrought aluminium, including primary metal, alloy and semi-finished aluminium products, fell 15 percent from July to 189,749 tonnes. Although China is the world's No 2 copper producer, after Chile, it is also the top user, and it tends to be a net importer. In aluminium, it faces an oversupply, with 20-30 percent excess production capacity, Xiong Weiping, the chairman of its top aluminium firm Chalco, said on Friday.
China is also expected to see a surplus of lead this year and next, despite a spate of environmental investigations into poisoning cases which prompted smelter shutdowns. Lead production in August was neck-and-neck with copper at 364,800 tonnes, up 5.6 percent on July. "Lead production still rose, because the crackdown won't take effect this soon. And just how effective it would be is unknown. Production totally depends on prices. High LME lead prices will definitely spur production," said Li at Great Wall Futures.
The cutback in China's lead production has pushed lead prices on the London Metal Exchange up 50 percent from mid-July to as high as $2,511 a tonne, before easing to around $2,100. Output of zinc, used in China's huge and booming steel industry, rose 10 percent to 415,000 tonnes. The country's zinc smelters might be spared in the crackdown, smelter officials, traders and analysts said.