Copper Surges on Talk of Output Cuts, Increased Buying in China

By Glenys Sim

Jan. 9 (Bloomberg) -- Copper in London surged 8 percent in Asia, tracking gains in Shanghai on speculation of output cuts in China and increased state buying in the world’s largest consumer.

Copper led gains in other metals as Chinese producers gauge whether declining growth justifies cutting output. The metal capped its biggest annual drop in more than two decades last year as turmoil in the financial markets pushed the U.S., Europe and Japan into recession, curbing demand.

“All the smelters are definitely considering output cuts, although I doubt they’ll do it right now because it is still profitable to produce,” said Wang Zheng, a trader at Everbright Futures Co. “They might take it month to month this year, rather than put out a full-year production plan, given the uncertainty surrounding the economy.”

London Metal Exchange copper rose as high as $3,449.75 a ton, and traded at $3,325 a ton by 1:08 p.m. in Singapore. It is headed for a second weekly increase.

Copper for March delivery on the Shanghai Futures Exchange rose 5 percent from the previous settlement price to 27,280 yuan ($3,992) a metric ton. The metal is up 15 percent this week, the largest weekly gain since May 2006.

Tongling Nonferrous Metals Group Co., China’s largest copper smelter, may cut production to reduce inventories, Liu Biyuan, an analyst at GF Futures Co., said from Guangzhou today.

A Tongling executive denied the speculation, saying this year’s production plan had not yet been decided. “I am not aware of any production cut,” said Wu Guozhong, Tongling’s company secretary.

Strategic Reserves

Renewed speculation that China’s State Reserve Bureau may make purchases to help local producers also helped lift market sentiment, GF’s Liu said.

“With so much uncertainty about demand going forward, such rumors tend to be exaggerated and unfortunately prices react in a similar manner,” said Liu.

China will purchase 290,000 tons of aluminum from domestic smelters to boost state reserves and stabilize prices by the end of January, raising speculation it will buy other metals too, industry executives said Dec. 25.

Still, there isn’t any strong reason to justify production cuts yet, said Lin Yuhui, research manager at China International Futures Co. in Shenzhen.

“There might be some smelters taking advantage of slower demand to shut for maintenance, but there’s little reason to actually reduce production because the prices now don’t justify a cut,” said Lin.

Among other LME-traded metals, aluminum rose 1.5 percent to $1,578.50 a ton, zinc added 0.7 percent to $1,244, lead gained 0.5 percent to $1,155, and nickel was up 0.5 percent at $11,601. Tin fell 1.3 percent to $11,250 a ton as of 1:11 p.m. in Singapore.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net