On the early morning of March 25, 2014 Beijing time, Barclays Bank analyst Gayle Berry recently released a research report stating that China's net copper import demand is expected to increase by 5% this year. The report points out that in this demand, the proportion of refined copper will decrease, while the proportion of copper concentrate will increase due to an increase in local production.

We believe that China's net import demand for copper will increase by 5% this year, with a decrease in the proportion of refined copper and an increase in the proportion of copper concentrate due to an increase in local production.

We expect that China's copper imports will further shift from the metal sector to the raw materials sector this year. Local refined copper production is likely to grow strongly, as it will take advantage of the increased supply of refined copper brought about by the expansion of new and old copper mines, as well as the stronger pricing incentives brought by the increase in the total cost (TC/RC) of converting refined copper into refined copper. Last year, we estimated the implied import demand for refined copper to be 2.6 million tons, while the actual import volume was slightly higher than this expectation, at 2.78 million tons.

For China's copper import demand this year, we expect the implied copper concentrate import demand to increase by a quarter to nearly 3.4 million tons; Both in terms of percentage growth and tonnage growth, it will set new historical records.

In contrast, China's demand for refined copper imports may decrease by 15% this year to 2.3 million barrels, due to two factors: 1) The growth performance of domestic refined copper production in China is very strong, and we expect the growth rate to reach 16% this year; 2) The growth rate of demand has slowed down, and we expect the growth rate to be 7% this year. However, the actual number of refined copper imports will depend on inventory cycles and price signals.

For example, at the end of 2013, China's refined copper imports exceeded demand, resulting in an increase in inventory, which continued to rise until early 2014. At present, pricing signals, inventory cycles (high inventory levels in bonded warehouses), and weakened financing demand all mean that imports of refined copper may significantly decline in the short term.

But in our view, this does not mean that China's demand for imported copper will weaken in mid-2014. In fact, the situation will be exactly the opposite: we expect China's copper import demand to further increase by 5% this year, but its driving force will come from the urgent demand for raw materials in the market, rather than the demand for metals. The market's demand for raw materials will account for a significant portion of the expected global copper supply growth.