Declining investment in China' power grid last month could signal declining copper demand in the coming months, analysts with UK bank giant Barclays said Tuesday.
Grid investment total Yuan 31 billion ($5.08 billion) in September, a 15% decline from a year ago and the first such decline this year.
"While the figure may not have included robust tenders in late September, investment growth and related copper demand could continue to trend lower," Barclays analyst Sijin Cheng said in a report.
Year-to-date investment in China's power grid has softened to 10.8% above the same period in 2012 from 44% in the first two months of the year.
"While the weakness is likely overstated, the trend still points to a deceleration in power sector spending, which could mean softer copper demand into 2014," Cheng added.
Spending on power grid can fluctuate sharply month to month and changes according to how many projects have been approved and when they were approved, Cheng added. Moreover, the date change for the Mid-Autumn Festival to September 19 may also have contributed to the weakness.
"While we are cautious on the outlook for grid spending, Q4 numbers are likely supported by robust tenders in late September, which may not have been included yet," Cheng said. The State Grid tender for 60.1 Gigavolt-amperes of transformer capacity in the fifth batch of the year (of a total of six batches) more than doubled the amount last year, and year-to-date, tenders are at 90% of the 2012 total.
"To be sure, total spending is still likely to exceed targets set at the beginning of the year, and the power sector has been a main driver of strong copper demand in China. But if grid growth has already peaked and stabilized, copper demand could, too," Cheng said.
