Current Operational Status of China's Nonferrous Metal Industry    

Status in the First Half    

Since September 2008, China's nonferrous metal industry has become one of the industries mostly affected by the international financial crisis. However, thanks to a series of policy supports from the government, the industry has begun to become stabilized and show a continuing rising trend.

1. Production continues to stabilize   

In the first half of 2009, China's nonferrous metal industry saw a 6.9% year-on-year increase in industrial value added, and the increase rate in June was 15.3%, compared with 7.3% in May. From January to June, the total output of ten nonferrous metals (copper, aluminum, lead, zinc, nickel, tin, antimony, mercury, molybdenum, tungsten) was 11.457 million tons, down 7.49% compared to the previous year. However, in June alone, the average daily output of the ten non-ferrous metals reached 71.7 thousand tons, a rise of 10.33% on the previous month. Among them, the production of aluminum in June was 1.0285 million tons, surpassing 1 million tons for the first time since November 2008.

2. Price increases despite volatility   

Spurred by policies like increasing domestic demand and industry stimulus program, the prices of China's major nonferrous metals are rising continuously. In June, the average spot prices of copper and electrolytic aluminum in domestic market were RMB39 867/t and RMB13 509/t respectively, up RMB1 842/t and RMB608/t separately compared to May and 53.5% and 12.1% separately from the early-year low. In mid-September, the average prices of copper and aluminum stood at RMB48 975/t and RMB14 933/t respectively.

3. Turning losses to profits    

During the first five months in 2009, China's nonferrous metal enterprises above designated size netted RMB9.42 billion in profit, down 81.8% from the year-ago period. According to statistics by the Nonferrous Industry Association, from January to June in 2009, 70 domestic key enterprises that it kept in touch realized RMB3.243 billion of profits after losses were offset, down 88.95% from one year earlier. Among them, June alone saw RMB2.716 billion of profits. Compared to the RMB485 million of losses in the first four months and the RMB527 million of profits in the first five months this year, it can see that the corporate profitability of the nonferrous metal industry is getting better month by month.

4. Investment grows   

During the first half of 2009, China nonferrous metal industry's (not including independent gold enterprises, the same below) investment in fixed assets totaled RMB113.484 billion, 19.25% higher in amount and 22.95 percentage point lower in growth rate than the same period in 2008.

5. Import and export drop slows down    

In the first half of 2009, China's overall import and export of nonferrous metals was US$32.693 billion, down US$17.779 billion or 35.22% compared to the same period in 2008. Of them, the imports and exports were US$26.475 billion and US$6.218 billion respectively, down 25.9% and 57.8% separately year on year. Despite continuous decrease of the import and export volume, the decrease rate somehow is becoming smaller. After hitting the bottom in January 2009, the imports and exports began to rise continuously and reached US$7.596 billion in June, up 24.13% on a month-on-month basis. However, most of the growth is contributed by the fast-increasing import value, and the export situation is not any better yet.

Industry Analysis    

1. Industry begins recovery   

Infrastructure, home building, cars and household appliances play the most important role in driving the nonferrous metal industry's development. Various factors such as gradual implementation of economic stimulus policies, accelerated investment in electric power, railway, highway and other infrastructures and pick-up in car and commercial housing sales directly stimulate the demand for nonferrous metals.
   However, it is a pity that the demand growth currently is slower than the production growth, and the inventory increase arising therefore mainly exists in the non-production and trade links and is hard to calculate. This part of inventory is uncontrollable and will undoubtedly bring great uncertainty to the future nonferrous metal market. Thus it is clear that the foundation for the industry growth is not solid yet, and to make it worse, with the price growths of the nonferrous metals, the government will cease to purchase and store nonferrous metals in the second half of 2009.

2. Pick-up degree of various sub-sectors differs    

Comparing different nonferrous metals, the copper industry developed best in the first half of 2009 and maintained a high apparent consumption growth rate of over 20% for four straight months. The achievement was mainly due to short supply of copper concentrate which caused the copper industry's overcapacity less serious than other metals. Also, huge copper demand growth caused by the fast-growing power industry and the government's plan to purchase and store 300 thousand tons of copper, will greatly alleviated copper oversupply.
   The market situation of electrolytic aluminum was relatively bad in the first half of 2009 due to rapid capacity expansion in the previous years which leaves the market oversupplied. In the first quarter of 2009, domestic aluminum manufactures cut production significantly, but soon, as the aluminum price grew with the large-scale aluminum purchase by the Chinese government, they resumed operation quickly, thus intensifying the overcapacity pressure and limiting the price rise of aluminum. At the same time, insufficient downstream orders landed electrolytic aluminum manufacturers in operational troubles, making the aluminum production remain at low levels.
   Lead and zinc are closely related to the home building industry and the automobile industry. With the gradual recovery of the two industries, lead and zinc consumption is picking up progressively and their prices are gradually regressing to the production costs.

3. Domestic and international prices differ greatly   

In the first half, the domestic and international metal prices differ greatly, thus leading to sharp rise in China's import volume. Take copper for example, in April, the spot price gap between home and abroad once reached as high as RMB8 000/t. From January to June in 2009, China's net imports of unrefined copper were 1.7959 million tons, up 1.1421 million tons or 75% over the same period in 2008.

Prediction for the Second Half    

1. Demand in the real economy to increase   

Major reasons behind the price growths of nonferrous metals in the first half include policy stimulus, ample liquidity, U.S. dollar depreciation and so on. At present, since the U.S. economy has begun to bottom out, the U.S. dollar's depreciation rate will slow down. Moreover, China's credit scale will experience a certain degree of contraction in the second half. Given these factors, it can foresee that in the latter half of the year, the robust price growths previously backed by financial property will lose support, while the demand in the real economy will expand gradually.

2. Copper and aluminum will benefit from recovery of household appliances and home building markets    

Export rebound of China's household appliance industry will greatly stimulate copper demand. Up till now, China's copper demand has maintained steady growth driven by investment in the power industry, which, with most of the investment l