China Stockpiles Copper to Guarantee Further Economic Stability

China’s General Administration of Customs recently reported that imports of copper and copper products once again dropped in October. The downward trend has been visible for seven months in a row. Copper imports to China have reached a record low, since February 2015. On a year-on-year basis, the decrease reached nearly 15 percent, or 290,000 tons.

Previously, China’s growing demand for copper maintained global prices for the metal. When Chinese imports started to decrease global traders and copper producers were concerned. At the same time, China remains the world’s biggest buyer of copper. This year, China imported 10 million tons of the red metal in the global market, while the entire global copper market was 22 million tons.

In terms of production and consumption, copper comes third in the global market, after iron ore and aluminum. The majority of world copper supplies are used in construction, the electrical energy industry, electronics, the machine building and transportation industries.

Currently, China consumes 36 percent of the global copper imports, while Japan – 29 percent, Germany – nine percent, Italy and the United States – seven percent each.

Consumption stats reveal that China has been the most influential player in the global copper market.

In addition to oil, copper has become one of the highest-in-demand assets in the Chinese stock market. As a result, copper stockpiles in China have soared to record levels over the last several years.

If previously copper reserves in China were stockpiled for no longer than one-two months, now they can be stored for a year and even longer.

However, the reason is not expectations of a hard-landing in the economy. In China, copper-related deals are a quick and easy way to secure a bank loan.

When the Chinese monetary regulator tightened the policy many traders faced problems with borrowing money. As a result, they found a loophole because banks easily gave loans for copper imports.

The current Chinese copper reserves could help Beijing maintain the supply-and-demand balance, even in the event of a big drop in imports, said Chen Fengying, head of the Center for Global Economy at the Chinese Institute for Modern International Studies.

"Strategic stockpiling is a matter of national security. Copper stockpiling in China and global copper pricing are closely connected. China is a large copper consumer, especially for the manufacturing industry and construction. Moreover, similar to oil, cooper may be in deficit. This is why China intensely imported copper last year, when the prices went down," Fengying said in an interview with Sputnik China.

Another reason behind the increase in the copper reserves is a drop in consumption, amid a downturn in the Chinese industrialization, according to the expert.

"All of the above resulted in the fact that China has accumulated large strategic reserves of copper. China will take advantage of the situation when prices go up," Fengying added.