China completed the largest copper restocking in its history in 2009. But according to UBS Securities analysts Tom Price, Julien Garran and Peter Hickson, it is not nearly enough.
In a note that they appropriately title "Warning: China is Short Copper", the analysts suggested that most of the copper that China imported last year has already been converted into semi-manufactured products. By the end of the year, they estimate that China was working through pre-existing stockpiles as well. That is pretty remarkable considering that the country imported about 3.2 million tonnes of copper as the government implemented a massive fiscal stimulus program.
"Basically, China is short of intermediate and refined copper products," the analysts wrote.
"Even a modest demand growth scenario for 2010 will require a robust restocking event, almost regardless of the constraints on trade posed by China's tightening credit markets."
They called for an "imminent lift" in China's copper import flows beyond current expectations. And as such, they are pretty bullish on copper. They expect a copper price above US$3.00 a pound over the next three years, before it declines back towards US$2.30 a pound in 2015.
Their favourite copper equities include Canadian companies First Quantum Minerals Ltd. and Quadra Mining Ltd., as well as foreign companies PanAust Ltd., Jiangxi Copper Co. Ltd., Kazakhmys PLC, and Freeport-McMoRan Copper & Gold Inc.