China May Boost State Reserve Copper Buying in 2009

By Li Xiaowei

March 16 (Bloomberg) -- China’s State Reserve Bureau may purchase a further 900,000 tons of copper this year, triple the amount it has probably already bought, Macquarie Group Ltd. said.

“The SRB has reportedly bought 300,000 tons of copper so far, and there is speculation that it could buy a further 600,000-900,000 during the rest of 2009,” Macquarie analysts led by Bonnie Liu said in an e-mailed report dated March 16.

The reserve bureau has purchased aluminum and zinc and other government agencies have acquired corn and cotton this year as China seeks to support the economy after exports tumbled. The government is implementing a 4 trillion yuan ($585 billion) stimulus plan after the country expanded at its slowest pace in seven years in the fourth quarter.

“It makes good sense for them to get the amount as a way to diversify foreign currency reserves,” Zhao Kai, an analyst at Jinrui Futures Co., said from Shenzhen. Still, “it’s needless for them to buy that much so soon as this year’s global surplus is estimated at only 300,000 tons.”

China, which has primarily held its $1.95 trillion in currency reserves in low-yielding U.S. government debt, should diversify investment to “fend off risks,” Premier Wen Jiabao said after the annual meeting of the legislature last week.

Record Imports

The reserve purchases have “just started” with total buying likely to be near to 800,000 tons in two years as long as prices remain low, Na Liu, an analyst with Scotia Capital Inc., a unit of Toronto-based Bank of Nova Scotia, said March 3.

Imports of copper and copper alloys advanced 55 percent to a record in February from the previous month, according to data compiled by Bloomberg, on expectations of a construction revival and as scrap supplies plunged. China imported 283,461 tons, the Beijing-based customs office said today. Commodities researcher CBI China Co. analyst Qu Yi said that was the highest ever.

Falling scrap supplies also lifted copper production in the first two months by 18 percent to 606,000 tons, according to data released by the statistics bureau.

China may boost imports of refined copper by 37 percent this year to about 2 million tons as scrap supplies drop and government spending sustains consumption, Simon Collins, general manager of Trafigura Trading Shanghai Co., said Feb. 24.

Macquarie said in February that the state reserve bought 100,000 tons of refined copper from Chile and parts of Europe. The state agency may have bought forward contracts on the London Metal Exchange up to July, Great Wall Futures Co.’s analyst Li Rong said this month.

Inventories in LME warehouses in South Korea, the closest location to China, have fallen for 17 straight days and are less than half their levels at the start of the year.

To contact the reporter on this story: Li Xiaowei in Shanghai at Xli12@bloomberg.net