* Smelters estimate 2013 refined production up to 5.6 mln T
* Estimate 17 pct lower than official headline output
* Inflated figures distort domestic metal demand, concentrate needs
* Smelters to use lower figures in contract talks with miners
By Polly Yam
HONG KONG, Nov 15 (Reuters) - China’s production of refined copper may have been inflated by more than 15 percent this year, smelter sources said, raising fresh concerns about the quality of data from the world’s second-largest economy.
China is the world’s top copper producer and importer and a pumped-up production figure would exaggerate its underlying demand, adding to analysts’ suspicion about the reliability of data ranging from jobs to exports. Fake invoicing inflated China’s overall trade - imports and exports - figures by about $75 billion in January-April of this year.
China’s importance as an engine of global economic growth and a top import market for a range of commodities from iron ore to soybeans, means its data is scrutinised by firms worldwide for a reading on future demand.
Nine of China’s top smelters met last weekend to seek clarity on supply and demand fundamentals after China’s National Bureau of Statistics (NBS) reported record refined copper output in October and annualised 2013 production of 6.8 million tonnes.
Executives from three large smelters, who will meet global miners for term contract talks later this year, told Reuters the official headline figure had likely been boosted by double-counting, as well as product from smaller plants being wrongly categorised.
“Our production has been double-counted and other producers should be in the same situation,” said one of the executives, who declined to be named given the sensitivity of the issue.
The three estimated China’s actual 2013 refined copper output at about 5.6 million tonnes, 17 percent below the official figure, based on production schedules at 31 firms. They forecast 2014 output at about 6.3 million tonnes.
“Based on our refined output estimate, there has not been as much supply in the domestic market as the statistics indicated,” one of the executives said. “The fact is that tens of thousands of tonnes of bonded stocks have already been used because of a supply shortage,” he added, referring to a fall in Shanghai stocks from 1 million tonnes in the first quarter to around 400,000 tonnes currently.
The executives said copper output figures have been inflated for years, but the problem is getting worse as smelters expand operations to other provinces, exacerbating the issue of double-counting.
In one example, Jiangxi Copper Corp, China’s top producer, included output at its 100,000-tonnes-a-year Penghui unit in Shandong province when reporting production to the Jiangxi government, where the firm is headquartered. However, the Penghui subsidiary also reported its own output to Shandong authorities, said two people familiar with operations at the firms.
The problem is set to worsen as companies add operations in multiple provinces. Jiangxi Copper is putting new plants in Guangdong and Zhejiang provinces, while Gansu-based Jinchuan Group will open a 400,000-tonnes-a-year plant in Guangxi next year.
An NBS spokesman told Reuters the bureau’s statistics from industry firms was based on the reported amount by each legal entity.
Jiangxi Copper has a minority stake in Penghui, but the two firms are separate entities.
At the same time, output from small smelters producing semi-processed material blister or anode is often labelled as “refined copper”, said Li Chunlan, an analyst for consultancy CRU. This material is later turned into refined copper by big smelters and counted again.
Compounding the data issue, local officials eager for political advancement tend to massage growth and industrial output figures upward, a problem the statistics bureau has been tackling. The bureau in September said Luliang County in Yunnan province had inflated its first-half industrial output and fixed-asset investment data by more than 100 percent.
An inflated refined copper output figure could complicate term supply negotiations between China’s smelters and global miners, who provide copper concentrate term contracts, with sellers pushing for lower treatment and refining charges (TC/RCs).
BHP Billiton this week offered a rise in yearly TC/RC for 2014 to Chinese smelters, but the smelters still see it as too low because they expect a supply surplus in the global market.
Global miners pay TC/RCs to smelters to convert concentrate into refined metal, with charges deducted from the sale price. Miners offer to pay less if they believe there is strong demand for the raw material to produce metal.
Based on surveys of 51 smelters, China will bring onstream about 800,000 tonnes of smelting capacity that uses concentrate as feed, boosting total capacity to nearly 5 million tonnes in 2014, the three executives said. The new capacity will produce 650,000 tonnes of refined copper next year.
Yet some global miners, who have based their calculations on official statistics, are forecasting a much higher rise of more than 1 million tonnes, they said.
Big gaps between miners and smelters on demand could lead to drawn out term negotiations for 2014 TC/RCs, when the two sides meet next week at a big copper event in Shanghai.