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Once the new grid investments translates into orders, copper consumption could improve and offset some of the losses from property sector, the report said.

24 Mar 2014

LONDON (Commodity Online): With China power grid spending showing strong growth of 22% year-on-year the first two months of 2014, investors worried over fallng prices could see some recovery in demand and improved market sentiments, according to Barclays.

Once the new grid investments translates into orders, copper consumption could improve and offset some of the losses from property sector, the report said.

China’s grid companies invested a total of CNY40bn in the first two months of 2014, an increase of 22% y/y. This growth was achieved despite a high base; in January-February 2013, investment rose 44% from a soft 2012. Other indicators were also healthy; grid companies added 11% more transmission lines in the same time period and 61% more transforming capacity. To be sure, absolute levels are seasonally low at the beginning of the year, with the first two months usually accounting for less than 10% of the annual total. However, the strong performance could help dispel some doubts over copper demand.

"Feedback we received from cable producers seems to belie this strength (see Base metals flash: China copper – A weak start, but demand could be near bottom, 11 March 2014). Some cable makers reported sharp slowdowns in orders in the first two months. Part of the reason is the abrupt reversal from last quarter’s highs. In addition, grid spending and equipment orders may not always occur in lockstep. In the State Grid tenders we track, the first batch for 2014 was awarded in mid-March (compared with early February in 2013), and total transformer capacity in the first batch fell 15% y/y from the first batch in 2013. The temporary mismatch in investment and orders may be to blame for weak sentiment on the part of cable makers. As orders are executed, however, copper demand could begin to improve sequentially," Barclays said.

Gridcos appear on track to realize their aggressive spending targets this year. The two major gridcos both expect to invest 13% more than last year. Energy regulators have been urged to accelerate the approval of ultra-high voltage networks, which could boost investment. If gridcos meet these targets, we expect the growth from the power sector, which accounts for more than 40% of China’s total copper consumption, to help offset headwinds from other sectors such as property, Barclays report added.


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