At the end of the year, corporate liquidity shortages have led to a surge in copper imports for financing purposes. Despite rising import losses, more imported copper continues to flow into bonded warehouses. Currently, copper stockpiles in the bonded area have reached 1 million tons—nearly double the inventory levels from March this year.
The industry is also accumulating hundreds of billions of yuan in copper over the years. If banking regulations tighten, the risk of copper-related credit exposure could skyrocket.
Although the Fed recently launched its fourth round of quantitative easing (QE4), which includes buying $40 billion in mortgage-backed securities and $45 billion in Treasury bonds per month, the unprecedented open-ended policy failed to boost commodity prices. Instead, non-ferrous metals saw a slight pullback due to the favorable monetary environment.
Meanwhile, the sharp rise in copper inventories on the London Metal Exchange (LME) has caused a major drop in LME copper prices. Domestic and international price ratios have fallen further, and import losses have widened. Domestic copper prices have not kept up with global price increases, adding pressure on the market.
According to China's General Administration of Customs, in November, 235,300 tons of copper and copper alloys were imported, marking a 13.5% increase compared to October’s 329,900 tons. Scrap copper imports also rose to 470,000 tons, up from 390,000 tons the previous month. The bonded zone’s copper stockpile has now hit 1 million tons, nearly doubling from March, and there are no signs of decline.
“Many companies are using copper as short-term collateral, not just copper producers,†said an internal manager at a major domestic smelting company. “Some industries do not even produce copper, yet they still participate in this practice.†The company added that less than 1% of the bonded copper is actually used, with over 99% remaining idle.
In November, China produced 531,000 tons of refined copper, a year-on-year increase of 11.6%, setting a new record. As of December 7, LME copper stocks surged to a record high of 255,200 tons, far above the previous average of around 200,000 tons.
Despite the losses, copper imports remain profitable. Due to last year’s credit crunch, copper financing has flourished. Analyst Zhou Xiaobo from Shenyin Wanguo predicts that the accumulated copper volume could reach 100 billion yuan, shifting from a simple “letter of credit + collateral†model to a high-risk “letter of credit + repeated mortgage†approach. This creates high leverage and low-cost funding for the private sector but accumulates unmanageable credit risks.
With recent rises in non-performing bank assets and increased regulatory scrutiny, the risk of copper-related exposure is growing. Tighter supervision could significantly impact copper prices. For now, liquidity and fundamental conditions have not improved, and the risk outweighs the opportunity in the short term.
Currently, weak demand from the end-user industries has limited copper consumption. November’s PMI for the non-ferrous metal rolling sector dropped to 49.49% after seasonal adjustments, down 1.37 percentage points from the previous quarter. While overall manufacturing PMI has risen, demand in the non-ferrous sector remains sluggish.
The power industry, a major consumer of copper, faces challenges due to winter weather, which hampers construction activities. Air conditioner output has slightly increased, while refrigerator production is in a seasonal lull. Copper demand for home appliances has not improved significantly. In November, copper plant operating rates fell to 60.96%, reflecting weak market conditions.
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