China importers may cut LME deliveries as copper premiums weaken
* Spot copper premiums fall a quarter to $150 over LME cash
* Premiums seen falling further as China supplies rise
* Aug arrivals seen at 300,000 T, Sept expected higher - trade
By Polly Yam
HONG KONG, Aug 30 (Reuters) - Chinese buyers may cut previously booked London Metal Exchange (LME) refined copper stocks over coming months as arrivals into the world's top consumer of the metal have built up inventories and weighed on spot premiums, traders said on Friday.
Fewer shipments into China would mean more supply on the international markets, which could blunt a rebound in prices. London copper is still down nearly 10 percent on the year, but is up more than $500 from a low hit in June.
Chinese importers have queued up to take LME stocks of copper bought in June, when price differentials between Shanghai and London were favourable for imports. They mostly paid premiums of about $150-$160 a tonne over cash LME prices .
The importers had planned to cash in as premiums later rose to four-year highs of above $200. But spot premiums have since fallen back to about $150 a tonne and are expected to fall to $100-$130 in the coming two months, traders said.
"People are expecting premiums to fall and have been unwilling to buy mostly in the past two weeks," a trader at a large Chinese trading house said, referring to copper stocks in bonded warehouses in Shanghai.
He said the arbitrage window had been mostly closed this month, prompting some importers to store copper arrivals in bonded warehouses, instead of paying the value-added tax and reselling into the domestic market as previously planned.
The bulk of the earlier orders were scheduled to arrive in China between July and October, leading to the rising inventory.
China's arrivals of refined copper were estimated at 300,000 to 350,000 tonnes for August, with imports likely to increase to about 400,000 tonnes in September, traders said. Arrivals included both spot and term shipments delivered from LME warehouses and global producers.
Refined copper arrivals rose 5 percent in July from the previous month, hitting a 10-month high of 291,846 tonnes, official data showed.
Copper in bonded warehouses in Shanghai rose to about 400,000-460,000 tonnes, from around 370,000 tonnes in late July, traders estimated. Stocks were still less than half of a record one million tonnes hit in late January.
Traders said banks in China also remained cautious about lending to small importers using bonded stocks as collateral after forex authorities tightened controls over such business in May, helping to cut demand. Lending on physical imports to the domestic market stayed normal, they said.
The higher supply, poor arbitrage and restricted lending on bonded stocks point to lower premiums.
"If premiums fall further, some importers may choose to leave the metal in the LME warehouses," a trader at a large Shanghai-based Chinese copper trading firm said.
He said importers, like his firm, that were still lining up to take deliveries of the metal they had already bought from LME warehouses could leave the metal there because lower premiums would cause losses if they took the metal back to China.
It wasn't immediately clear how much of the previously booked metal could be left in the LME warehouses.
Johor in Malaysia holds the largest stocks in LME warehouses in Asia currently, with 202,150 tonnes on Thursday MCU-MYJHB-CATS. Up to 75 percent of the Johor stocks are booked for shipment, with the bulk expected to head to China. (Editing by Tom Hogue)