China premiums for refined copper hit 7-month high

Tue May 21, 2013 4:35am EDT

Related Topics

* Domestic premiums at around 500 yuan/T over Shanghai front-month contract

* One producer takes more than 10,000 T from spot market, adds pressure

* Availability of bonded stocks falling

By Polly Yam

HONG KONG, May 21 (Reuters) - Premiums paid by Chinese buyers of physical refined copper have risen to a 7-month high after domestic producers cut output following a shortage of the scrap used as raw material, in a development that could boost imports.

Many fabricators held low inventories of refined copper after an economic slowdown hit demand for their products last year in China, the world's largest consumer of the metal, and were ready to pay high premiums for spot metal, traders said.

"We estimate demand for refined copper has risen more than 10 percent from the same time last year," said a purchasing manager for a large fabricator.

"But the availability has been getting lower and lower in the previous weeks, including stocks in bonded warehouses," added the manager, who declined to be named, as he was not authorised to speak to the media.

The premium, or the differential between spot prices CU-1-CCNMM and the front-month contract on the Shanghai Futures Exchange, has hovered this week at about 500 yuan ($81.45) a tonne.

That was the highest level since September 2012 and was equivalent to nearly 1 percent of the contract price.

As more producers battling the scrap shortage cut output, demand for refined copper has risen in May because fabricators that can use both refined metal and scrap in their plants have stepped up purchases of refined copper to replace scrap.

"It's all about scrap," said a trader with a Chinese trading house, describing demand from fabricators. "Local production is being affected. Demand for the metal is increasing."

Firms that have cut output because of the scrap shortage include the country's fourth-largest producer, Yunnan Copper , which shut a 100,000-tonne-a-year unit over the weekend, its vice-president, Zhang Fang, said on Tuesday.

That move followed production cuts in the past month by top producer Jiangxi Copper Company Ltd and smaller manufacturers.

Supply of refined copper in the domestic market fell further this week after one large producer bought more than 10,000 tonnes in the spot market to make up term shipments, traders said.

Further narrowing supply, medium-size producer Baiyin Nonferrous Metals delayed by a month the re-opening of its 160,000 tonne-a-year smelter after a closure for maintenance in February. It restarted production a few days ago, a company source said.

Stocks in bonded warehouses in Shanghai have fallen to around 500,000 tonnes, their lowest level since June 2012, traders estimated.

The stocks were estimated at about 600,000 tonnes a month ago and about two-thirds were tied up in financial deals and unavailable to the spot market.

Copper stocks monitored by the Shanghai Futures Exchange CU-STX-SGH fell 23 percent to 190,330 tonnes last Friday, from a multi-year high of 247,591 tonnes in March, which was the second highest after a record 248,333 tonnes in April 2002.

Lower domestic availability and bonded stocks are prompting fabricators to seek imports of spot refined copper.

"We placed new orders for spot metal imports for May and June," the purchasing manager of the large fabricator said, but gave no details of volume. ($1=6.1389 Chinese yuan) (Reporting by Polly Yam; Editing by Clarence Fernandez)

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