Bloomberg News

China Copper Premium at Five-Month Low as Bonded Stocks Rise

February 15, 2012

(Updates copper price in fifth paragraph.)

Feb. 2 (Bloomberg) -- Copper premiums in Shanghai, the main hub in China for importing the metal, have dipped below $100 a metric ton for the first time since August as stockpiles at local bonded warehouses surge.

Premiums paid by importers over the London cash price were quoted as low as $90 a ton on a cost, insurance and freight basis to Shanghai this week, said Zhu Lin, an analyst at data provider SMM Information & Technology Co. That compares with about $120 a month ago, said Zhu.

Stockpiles held by bonded warehouses in Shanghai have risen to almost 400,000 tons from about 300,000 tons a month ago, according to a Bloomberg News survey of seven analysts and traders in China. Rising inventories in the world’s largest user may curb Chinese imports in coming months, capping prices as local fabricators have yet to return to the market after the Chinese New Year holidays.

“As the arbitrage window has been closed for some time, and domestic inventories continue to increase, it won’t be surprising to see premiums drop further,” Pang Juan, an analyst at Jinrui Futures Co., said by phone from Shenzhen.

The metal for delivery in three months on the London Metal Exchange advanced 9.5 percent in January amid an improving U.S. economy, progress in solving European debt crisis, and record imports by China in December. The contract climbed to a four- month high of $8,679.50 a ton on Jan. 27, and traded 0.5 percent lower at $8,395 a ton at 11:40 a.m. Shanghai time today.

Inventories tallied by the Shanghai Futures Exchange gained for seven consecutive weeks before the week-long holiday to double to 131,645 tons as of Jan. 19 from a 28-month low of 57,655 tons on Dec. 1, bourse data showed.

Quiet Market

“We heard a wide range of premium quotes, with the lower end breaching the $100 benchmark, and although estimates on bonded stockpiles vary, everybody agrees they have increased from the end of last year,” SMM’s Zhu said. “This may be because the market hasn’t fully recovered from holiday mode.”

Demand for the metal used to make pipes, wires and cables usually picks up in spring, as fabricators resume operations in February to meet orders.

“Orders were slow at the end of last year, so some fabricators are not in a hurry to resume production this year,” Pang said. “We’ll have to wait for a couple of weeks to see if the market can warm up.”

China’s official purchasing managers’ index rose to 50.5 in January from 50.3 in December, the National Bureau of Statistics said yesterday, exceeding a median estimate of 49.6 in a Bloomberg News survey of 17 economists. A separate PMI by HSBC Holdings Plc and Markit Economics showed a contraction for a third month with a reading standing at 48.8, compared with 48.7 a month ago. A reading above 50 indicates an expansion.

Imports Capped

The nation shipped in a record 406,937 tons of the refined metal in December, a seventh monthly gain, customs data showed.

“The surge of copper imports was mainly driven by financing demand and improved liquidity, while the real economy was suffering from the aftershock of a severe credit crunch,” Henry Liu and Shirley Zhao, analysts at Mirae Asset Securities Ltd., said in a report yesterday. “We are seeing a receding momentum of copper imports,” and prices shall be range-bound between $7,500 a ton and $8,500 a ton, they said.

--Helen Sun. Editors: Richard Dobson, Jarrett Banks

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net


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