LME copper stocks drop to 13-month low

* Stocks fall to 353,425 tonnes, draws from New Orleans

* Cancelled warrants at 18.7 pct

* Stocks to stay low on signs of demand, deficit expectation

By Harpreet Bhal

LONDON, Jan 17 (Reuters) - Copper inventories in London Metal Exchange warehouses have dropped to a 13-month low, and more declines are seen likely as a pick-up in U.S. demand and concerns about a market deficit outweigh a slowdown in buying from top consumer China.

Copper stocks MCU-STOCKS have slid by around a quarter since October as weak prices have spurred restocking in China, culminating in record copper imports into the country in December.

LME inventories of the metal used in power and construction fell this week by a further 1,150 tonnes to 353,425 tonnes, their lowest level since mid-December 2010, according to LME data released on Tuesday, which represents movements a day in arrears.

And considering that cancelled warrants, or metal earmarked for delivery, account for nearly 20 percent of stocks, inventories are due to fall in coming weeks below 300,000 tonnes to the lowest levels since 2009.

A 25 percent drop in LME copper prices in the fourth quarter, which touched a low of $6,635 per tonne in October, triggered restocking in China, which accounts for about 40 percent of global copper consumption.

But Chinese buying is now likely to take a back seat as prices have recovered to about $8,150 per tonne, business slows ahead of the Lunar New Year and the London-Shanghai arbitrage is no longer favourable.

"Chinese traders show reluctance to buy copper when there is an eight in front of its price," said David Wilson, an analyst at Citigroup.

"It's fairly obvious that China has been restocking since September, attracted by lower prices, but now the question is: are we going to see more restocking or are consumers already sitting on reasonable volumes?"

BRIGHT SPOTS?

Balancing the expected slowdown in copper buying from China are some emerging bright spots for demand, with recent U.S. data from the labour market to manufacturing showing signs of a pick-up in economic activity.

"We believe that this (copper) is going to end-user demand with U.S. economic data pointing to a pick-up in the momentum of economic activity," Barclays Capital said in a note last week.

The bulk of the Tuesday's inventory falls were reported in New Orleans, where more than 30 percent of total stocks are held.

Traders said the material from New Orleans has mostly been shipped internally in the United States and to the Middle East, China and Italy, in part pre-empting any big queues likely to appear in New Orleans in the coming months.

Copper stocks may also be declining due to an anticipated market deficit this year, analysts say.

"It's the year ahead that people are looking at. You may have people taking the view that there will be a significant deficit this year and are looking to secure stocks where they can find them," said Nic Brown, head of commodity research at Natixis.

"With stocks in Europe and Asia declining to very low levels, there might be a perception that the only game in town this year is going to be American stocks."

The global market for refined copper is seen in a 250,000 tonne production deficit in 2012, before easing to become nearly balanced in 2013, according to a report from International Copper Study Group in October last year.

The drop in copper stocks is in sharp contrast to a record jump in aluminium inventories to above 5 million tonnes as stocks were delivered against the LME's January contract, in part to free up capital. (Additional reporting by Melanie Burton and Silvia Antonioli, editing by Jane Baird)