China investors up bets on copper as fundamental picture brightens

SHANGHAI (Reuters) - Chinese investors whose rush into copper hauled it to 16-month highs this month say infrastructure spending and government reforms will keep the metal well supported this year and into 2017.

Trucks carrying copper and other goods are seen waiting to enter an area of the Shanghai Free Trade Zone, in Shanghai in this September 24, 2014 file photo. REUTERS/Carlos Barria/File Photo

Copper surged more than 11 percent in a week in early November - its biggest weekly jump in six years - fueled partly by new investment from small investors, according to brokers and traders at last week’s Cesco copper conference in Shanghai.

While London copper has since lost some of these gains, it is sitting around $5,480, some 10 percent above its levels of the past year, with many in the industry seeing an end to a years-long bear market.

“We have a very active government-sponsored infrastructure investment this year but the manufacturing business is still at a very depressed level,” said Gao Xiaoyu, president of China Minmetals Non-Ferrous Metals Co, on the sidelines of the conference.

“I think this sector (manufacturing) will improve and that is the biggest demand for metals. From that point, I think next year could be better for metals demand.”

With China’s economy showing further signs of steadying, efforts to curb supply that have lit a fire under coal prices and pushed up steel have also boosted confidence in a fundamental demand pick-up as the higher prices have stuck.

“There is a basis for this price rally due to supply side reform,” said Luo Shengzhang, general manager of Chinese trader Jinchuan Maike Metal Resources.

“Supply has been curtailed, while demand has grown. As a result, we see that the apparent consumption of commodities is in very good shape,” he said.

The rise in copper, which has lagged recent gains in other base metals, has also been spurred by a return to the sector by retail investors, said Tiger Shi, managing director of Hong Kong broker Bands Financial.

Chinese investors are banking on their knowledge of their home market, which is set to account for 49 percent of copper demand next year, according to the International Copper Study Group (ICSG), up from around 45 percent this year.

“You can’t have any insight about what the Fed could do, particularly when you compete with the Western hedge fund managers. But commodities, for the last 10 years, it’s driven 50 percent by the demand of China,” Shi said.

At the same time, many small investors see the property market peaking, while returns from equities are dwindling and regulation has curbed investment in other financial products.

Offering some support for a sustained rally, premiums for metal stored in China soared above 1,000 yuan a ton this month, the highest in more than two years.

“In the past, we have paid too much attention to the supply but we failed to pay attention to the consumption,” said He Jinbi, chief executive of Maike Metals Group. “Consumption in Q3, Q4 is really a good performance.”

Reporting by Melanie Burton and Josephine Mason; Editing by Richard Pullin