China copper output up, creates problem of plenty

China's copper output rose 6 percent in April to its second highest level ever, which, along with record imports, could push the country closer to a rare surplus situation and limit new orders from overseas markets.

The possibility of an oversupply situation in the world's largest copper consumer could halt a rally in copper prices that have gained more than 50 percent so far this year and may also prompt investors to tread cautiously before taking positions.

Refined copper output in the world's largest consumer rose on the month after falling 0.2 percent in March, data from China's Statistics Bureau showed on Wednesday. Strong prices and increased supply of raw material had spurred smelters to lift copper output after slowing earlier in the year, analysts said.

Copper's output growth outpaced primary aluminium, zinc and lead -- all metals in which China leads world production, although tin output, in which China is also No.1, surged.

Aluminium and zinc were steady with March, based on daily output, but lead smelting slipped as repairs at top smelters cut output, even though some other smelters restarted capacity.

April's refined copper output rose to 338,300 tonnes, the second highest, after a record 357,700 tonnes in October 2007.

"China's copper market is going into an obvious surplus," said Judy Zhu, commodity analyst at Standard Chartered Bank (China), citing high domestic output and April's record imports.

"Consumption from the power grids has stayed good. But producers of power cables and wires who do not count the grids among their clients are not doing well," she said.

Copper consumption by air-conditioner producers was falling ahead of the domestic low production season, starting in late May, she added.

Wednesday's data showed China's production of semi-finished copper products was broadly unchanged at 806,700 tonnes in April while power cables, a copper-based finished product, fell 13 percent on the month to 1.7 million kilometres.

But refined copper output could have been even higher.

"April's output was not as high as I had expected, given that smelters have raised production in order to meet this year's output plans," said Zhu Yanzhong, analyst at Jinrui Futures, a subsidiary of top producer Jiangxi Copper.

He predicted output would rise further in May, spurred by strong domestic prices last month and rising imports of copper concentrates and scrap.

Tight supply of scrap, an alternative for refined copper production, had cut smelters' output in the first quarter. But scrap imports rose 21 percent on the month in April, easing the short supply in the domestic market.

Refined tin production in the world's top maker and consumer of the electrical soldering metal also rose 17.5 percent on the month after surging 134 percent the previous month, to 12,472 tonnes in April, thanks to a 6 percent rise in local prices and a resumption of production at top producer Yunnan Tin <000960.SZ>.

"We restarted production in March and the output has been rising," an executive at Yunnan Tin said, but added that tight supply of concentrate could limit output growth in coming months.

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