Asian Metal: Mr. Liu, thanks for accepting Asian Metal’s interview. First of all, what do you think about the global economy outlook?

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Liu: Seen from the US jobless data, US economy is recovering gradually. Moreover, Chinese economy keeps improving, and China, without any doubts, achieves its 8% growth in the gross domestic products this year. Although the global economy does not shake off the weakness completely, the recovery is on the way. However, the improving global economy mainly benefits from the effective measures and easy monetary policy from many governments, and the real economy does not turn as good as expected. In this case, the global economy still needs some time to walk out off the weakness.

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Asian Metal: Chinese government announced that it will adopt easy monetary policy in 2010 but pay more intention to the flexibility. In this case, investors may move out capital out of commodity markets?

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Liu: There is a lot of liquidity in the commodity markets, and Chinese governments may adopt some measures to curb inflations. Definitely, Chinese economy has had a good run this year, but it increases so fast and lacks support from fundamentals. The economy may continue to go up next year on the condition that there will be a more favorable economic environment. Therefore, it is normal for Chinese government to pay more intention to the flexibility for the monetary policy. Additionally, whether more investment money will withdraw from commodity markets or not is uncertain. If the inflation keeps pumping up, Chinese government will surly strengthen its control, making a part of capital out of commodity markets. In fact, that is a factor that the economy in 2010 is unclear. As we know, most commodities prices have increased a lot this year, and it is difficult for them to increase further.

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Asian Metal: In this case, why are some participants still optimistic about copper market in 2010, especially in March and April?

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Liu: Firstly, it is usually bullish season for copper consumption every March and April. Secondly, there are different settlement methods in China and western countries, which will begin in the first quarter next year. At that time, economic data will come out in succession. In fact, the real economy does not turn good as expected, and the global economy may climb down slightly in the second or third quarter in 2010.

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Asian Metal: Although copper prices increase sharply, the market fundamentals remain weak, especially the weak demand. Do you think whether the demand will recover significantly next year or not?

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Liu: Copper prices have increased a lot in 2009, and there is little room for the price to rise further. However, the supply of copper concentrate and copper scraps will keep tight in 2010, which will continue to give a strong support to copper prices.

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Asian Metal: Chinese and Japanese copper smelters negotiated the treatment and refined charges for copper concentrate in 2010 at around USD46.5/t and 4.65 cents every pound, down by about 38% compared with those in 2009. In this case, will Chinese imports for copper ore decrease greatly? Above all, Chinese smelters can gain few profits from the business at the current treatment charges.

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Liu: I think Chinese imports for copper concentrate will not reduce sharply, and the rising copper capacity will increase the imports. Seen from the decreasing TC/RCs, Chinese smelters can gain few profits. Nevertheless, smelters need to keep production ongoing, and the smelting production cost is settled. Definitely, it is difficult for smelters to get profits next year.

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Asian Metal: The rising copper prices benefit from the global economic recovery and the weakening US dollar. However, US dollar turns strong currently, and copper prices do not suspend increasing. How do you think the relationship between copper prices and US dollar?

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Liu: In the past few months, US dollar kept weakening, and hedge funds took long position, pushing up commodity prices. Now economic data from many countries turns better, and hedge funds will sell US dollar and buy commodities. Once American economy touches floor, US dollar will keep firm. If US economy turns good, more capital will withdraw from commodity markets. In this case, American government will adopt strong monetary policy, and America Reserve Bureau will not keep interest rate at nearly zero level.

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Asian Metal: However, America Reserve Bureau decided to hold the interest rate at low levels

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Liu: American government is cautious to increase the interest rate, and it mainly depends on its unemployment rate. If the unemployment rate keeps dropping in the continuous four months, it will increase interest rate. In this case, I think America Reserve Bureau will rise in the first quarter. US index keeps rising from 74 to 77-78, and it may continue to keep running at low levels or go up after the first quarter. However, the rising US dollar will give a support to the copper market at that time.

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Asian Metal: Additionally, latest data showed that copper market saw a surplus this year, and do you think copper market is in oversupply?

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Liu: I do not think copper market becomes surplus currently. If American and European economy warms up in 2010, the consumption for copper cathodes will increase, and some inventories will move out of warehouses and be digested finally.

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Asian Metal: The inventory on LME has increased to over 500,000t, the highest level since April 2009. Can European and American countries digest such high stockpiles?

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Liu: If the economy reaches to a certain high level. I think they can. Moreover, with the arbitrage window opening up, Chinese dealers begin to increase imports.

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Asian Metal: However, copper smelters are still active in expanding capacity on the continuous price rises. Take China for example, many smelters, including your smelter, still expand copper capacity. There will be over 1,000,000tpy of copper expanding capacity in 2010 and 2011.

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Liu: We can not judge copper market direction only from China but the global market. If more copper smelters are put into production, the imports for copper ore and copper scraps will be on the rise accordingly, since Chinese supply falls short of the demand. Moreover, foreign investors will become optimistic about Chinese demand and continue to push up copper prices. However, the spot supply in China remains abundant, and domestic copper prices are under great pressure.

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Asian Metal: Copper prices kept firm recently, along with the slack season, and the spot trading remained thin due to dim demand.

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Liu: Copper futures on SHFE increase fast, but the spot prices perform badly. Downstream consumers need to turn over capital at the end of the year, and copper prices indeed rise so fast. Therefore, consumers are reluctant to rebuild stocks at the current high price levels. The same problem occurred when copper prices rose to RMB40,000/t in Chinese market, but consumers came back to make purchase when the prices consolidated at the price level.

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Asian Metal: What about your company? It is said that Daye Nonferrous Company will double copper capacity by 2015?

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Liu: We consider cooperating with Changjiang Electric for the list, but the date is unclear. Additionally, we produced about 260,000t of copper cathodes this year, almost unchanged compared with that in 2008. Our target output is 260,000-280,000t in 2010. For the expansion project, we do not launch until now.

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Asian Metal: Copper market direction in China mainly depends on that of London. In this case, do you have some advises for governments or colleagues?

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Liu: For export market, I think China should encourage major smelters to export semi-copper products and adopt some preferential policies

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Asian Metal: Thanks again, and I hope Daye Nonferrous will have a prosperous future.