A Wall Street Transcript Interview with Zhao Hu, an Equity Analyst for Morningstar, Covering Asia Pacific Basic Materials and Energy Companies: Accelerated Electric Grid Spending in China to Buoy Copper Demand

Wall Street Transcript

67 WALL STREET, New York - April 17, 2014 - The Wall Street Transcript has just published its Metals & Mining Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Mining Safety and Environmental Concerns - Global Iron Ore Production - Emerging Market Infrastructure Construction - Chinese Demand for Industrial Metals - Zinc Supply Deficit - Demand Growth in Zinc - Accelerated Grid Spending in China - Copper Demand in China

Companies include: Jiangxi Copper Company Limited (0358.HK), Zijin Mining Group Co. Ltd. (2899.HK), China Coal Energy Company Limited (1898.HK), China Shenhua Energy Co. Ltd. (1088.HK), Anhui Conch Cement Co. Ltd. (0914.HK), Baoshan Iron and Steel (600019.SS) and many others.

In the following excerpt from the Metals & Mining Report, an expert analyst in the Chinese materials markets discusses the outlook for the sector for investors:

TWST: Please begin with a brief overview of your coverage.

Mr. Hu: I cover metals, mining and overall basic materials companies listed in Hong Kong and Asia Pacific stock exchanges. So that includes copper, gold, cement, coal, along with steel companies.

TWST: You expect improved grid spending to buoy Chinese copper demand this year. How is that thesis playing out so far, and which companies from your group are beneficiaries?

Mr. Hu: So far we have seen copper prices come under heavy selling pressure because of increasing fear for China's economic growth in the near term, as lackluster PMI and new real estate construction data come out of China. In addition to a renewed demand uncertainty in China, a lot of copper is held in the import/export warehouses where Chinese copper traders use them as collateral to obtain credit financing, which then can earn a profit in China's shadow lending market.

Evidently, these huge amounts of copper are being stored in the warehouse and not for physical use. Various media reports have estimated between 20% to 40% of total port inventory of copper in China is being used for lending purposes. This is substantial. As the Chinese government is cracking down on its burgeoning shadow banking practice, traders are expected to unload a lot of this copper into the open market, which will also increase supply in the near term and dampen prices as well. So we have seen a fair amount of pressure on copper from the supply side.

That said, I think electric grid spending is going to accelerate compared to 2013, and that should buoy copper demand and bode well for prices in the short term. Our 2014 copper price forecast is around $3 per pound, and our 2017 copper price forecast is $2.79 per pound.

I cover only one copper company under my list, Jiangxi Copper (0358.HK), which is traded in Hong Kong as well as in Shanghai. The company has been able to beat the Street consensus in 2013 earnings...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

View Comments (0)