Physical demand for copper in China has finally started to pick up after months of softness, Barclays Capital reported after meeting with producers, consumers, traders and analysts in China last week.
Upstream producers, traders and semi-fabricators all saw a pickup in sales and utilization rates, with last week's (Mar 18-22) sell-off triggering buying interest, according to the report.
"However, several market participants pointed out that while a demand recovery is undoubtedly underway, it is still more moderate than boom years in the past," Barclays analysts wrote. There are also concerns that demand growth could be outweighed by improving supply.
Copper wire, cable, rod and foil demand has improved after the new year holiday (ended February 18) while semi-fabricator utilization rates have also increased.
"Demand from tube makers, who benefit most directly from sharply higher white goods sales, was the most robust, but wire and cable producers have also begun to see orders from the gridcos," according to the report, although demand varies from region to region with southern China seeing a slow start after the holidays while eastern China is witnessing a faster rebound.
"Overall there are heightened levels of uncertainty amongst market participants as to how sustainable the demand recovery is, especially given the policy risk to the property market," the analysts wrote.
Barclays is expecting copper imports to improve in April and May thanks to improved domestic demand and the sell-off in LME prices which resulted in the LME/SHFE copper price arb opening up.
Copper scrap imports will continue to struggle, according to the bank, partly because of increased scrutiny by customs officials. "The government does not want to encourage independent recycling due to its impact on the environment, and hopes to instead only endorse scrap imports by semi-fabricators or refineries."
The tighter scrap supply has resulted in substitution into refined copper which could boost consumption in the short term.
China consumes around 40% of global copper production, making the red metal much more susceptible to rises and falls in the Asian country and especially in the Chinese property market.