Copper demand seen surviving China rate hikes

By Alonso Soto and Melanie Burton

SANTIAGO (Reuters) – China’s interest rate hikes are fanning fears of a deeper slowdown in the world’s top copper consumer, but demand remains strong and is picking up in the United States and Europe, industry executives say.

The Chinese central bank raised rates on Tuesday for the fourth time since October as it seeks to counter price pressures, initially depressing prices, but copper ended firmer as tight supply underpins the market.

“The fundamental demand is still there (China). The credit situation in China, when that changes, has a short-term effect, but the underlying growth story in demand is still there,” Xstrata (XTA.L: Quote, Profile, Research) Copper Chief Executive Charlie Sartain said on the sidelines of the CRU world copper conference in Santiago.

“Internationally we see a recovery in other markets not as significant as China,” he added. “In markets such as the U.S., we see a recovery there.”

China’s rate hike underscores its determination to clamp down on inflation to keep the world’s fastest growing major economy on track.

Sartain expects demand for copper in the United States to grow by around 6 percent, and sees signs of an emerging recovery in Europe after the 2008 financial meltdown.

The consensus among industry players is that demand in China will remain buoyant as the world’s No. 2 economy forges ahead with infrastructure and urbanization projects.

Copper prices surged 31 percent in 2010 and hit an all-time high of $10,190 per tonne this February, before easing.

And with markets expecting a copper supply deficit of 444,000 tonnes in 2011, and a narrower 184,500 tonnes deficit the following year, prices are expected to remain high.

However, Miguel Angel Duran, CEO of Anglo American’s (AAL.L: Quote, Profile, Research) Chile arm, says copper deliveries to China have eased.

“For now, it’s something that needs monitoring, but I have no reason to think it will be a worry in the long term,” he said.

Some are concerned that rising stocks held by investors as collateral in China, not immediately visible to the market, could significantly shrink copper deficit projections.

Others argue markets are obsessing about China — and say they would prefer slower but more sustainable economic growth that would avoid price bubbles.

But China still remains the No. 1 risk to demand for the red metal.

“In the near term, it has been and will continue for the foreseeable future to be the performance of China,” said Richard Adkerson, CEO of U.S. miner Freeport-McMoRan Copper & Gold Inc (FCX.N: Quote, Profile, Research).

“Behind China is the global economy and rising oil prices is one factor that affects the global economy. China today is consuming 35 to 40 percent of the world’s copper and providing the growth in this industry.”

(Writing by Simon Gardner; Editing by Lisa Shumaker)

Copper demand seen surviving China rate hikes