(Corrects first paragraph to say “percentage point” instead of “percent.”)
* Sees market growth at 2.5 pct vs 3.5 it expected in Jan
* U.S. market stronger than thought, China sluggish
* Steps away from spot market, secured long-term contracts
By Susan Thomas
SANTIAGO, April 8 (Reuters) - Copper products maker Luvata has trimmed 1 percentage point from its expectations for 2013 market growth mainly due to the financial crisis in Europe, and has warned of sluggish demand in China, one of its biggest markets, Chief Executive John Peter Leesi said on Monday.
The Europe-headquartered company, whose products are used in heating, ventilation, air conditioning and refrigeration, now sees market growth at 2.5 percent, down from the 3.5 percent it had expected in January, Leesi said in an interview on the sidelines of the CRU/CESCO conference in Santiago.
“We remain positive about the U.S., we see the U.S. as a stronger market even than we thought a while ago,” Leesi said.
“However, Europe is not improving at all, there is no improvement in Europe. And that is the main reason we have taken down our expectations for 2013.”
Around 40 percent of Luvata’s business is in Asia, 30 percent in Europe and 30 percent in the United States.
However, while Luvata’s first-quarter sales were “pretty flat” compared with last year, the company’s order book is fairly robust, Leesi said.
“We shouldn’t take that as an expression that we see a lot of growth coming, but it doesn’t look like it will get worse globally even if we think that Europe could get a little worse,” he said.
China too, Luvata’s main market, was surprisingly weak last year, and the company has noted a slow start in the first quarter, Luvata Senior Vice President Sourcing Bob Kickham said in the same interview.
He pointed to air conditioner shipments, which shrank around 10 to 20 percent last year.
“We have never seen numbers like that in China. We’re waiting for a recovery there, and it just shows that China was surprisingly weak last year and there is still some way to go before we can talk about a recovery in China,” Kickham said.
“This is now the high season for (air conditioners and refrigeration), so our people on the ground say it should be coming soon, but this has not yet translated into orders for us.”
To offset Europe’s poor performance and a shaky economic recovery in China, the company wants to capture market share in the United States, and move into Latin America and the peripheral markets in Europe, like Russia, and even the Middle East.
“This is in order to improve sales out of Europe and not only rely on the core European markets,” Leesi said.
Unlike last year, the company has stepped away from buying material in the spot market in the first quarter and has secured long-term contracts with suppliers, Luvata Vice-President Metals Ian Scarlett said.
“We believe that the risk was premiums had more upside potential, so we have as a consequence been a lot quieter in the spot market during the first quarter,” Scarlett said.
“That’s because business has remained relatively flat so we haven’t seen any spikes in production, and secondly because we have secured long-term contracts with flexibility that have allowed us to step away from the spot market.”
The tactic appears to have paid off.
“What we are seeing now are stronger premiums due to Chilean strikes, due to arbitrage, due to warehouse queues and we made sure we would not be exposed to that situation.”
Premiums are paid above the London Metal Exchange cash price to cover delivery costs including transport and insurance. The LME, though, is the market of last resort and buyers can lock-in long-term contracts with suppliers.
However, trading houses and banks have been drawing spare copper into their warehouses, which combined with an imminent strike in top copper producer Chile has pushed copper premiums in Europe to $80 to $100 a tonne versus $50-70 at the end up February.
“It’s an issue for us on two sides: if we need material if there is a spike in production and we need material relatively quickly we have on occasion gone to LME warehouses to source that material, that today can be a problem for us,” Scarlett said.
“The bigger issue is that the warehouses have historically been buyers of last resort, and today they are buyers of first resort. And what it is doing is causing a premium distortion for consumers.” (Reporting by Susan Thomas; Editing by Tim Dobbyn)