* Cash arbitrage expands this week as LME falls
* Fabricators build metal stocks for the first time this
* Bonded stocks premiums $70 to near $90 this week - trade
By Polly Yam
HONG KONG, March 20 Price spreads of cash copper
on the London Metal Exchange and the spot Shanghai market have
widened to the best arbitrage opportunity for imports into top
consumer China since late 2011, although already high stocks may
cap fresh orders.
Any increased arbitrage trade, however, would speed up the
decline of falling bonded warehouse stocks in Shanghai, and ease
worries that China's refined copper imports will remain weak
this year due to the existing large inventories.
Investors had already moved some bonded stocks into the
domestic market around the beginning of the month ahead of the
peak demand season, reducing the Shanghai stockpiles more than
10 percent from a record hit in January.
"We believe the arbitrage could stay open in the second
quarter," said a trader at a large trading house, who declined
to be named because he was not authorised to talk to the media.
"Fabricators have been buying. They are preparing for
stronger demand as the peak consumption season is approaching."
Fabricators, which typically buy the metal to manufacture
semi-finished or finished copper products, were buying spot
metal this week in the domestic market or from the bonded stocks
to build up refined copper inventories for the first time this
year, traders said.
The cash arbitrage opened last week and the gap has expanded
this week as LME prices fell faster than prices in China,
prompting investors and fabricators to boost buying of physical
metal and move more bonded stocks into the domestic market.
Cash LME copper fell more than 3 percent to about
$7,537 per tonne on Wednesday, from last Friday, versus a 2.4
percent fall for spot metal in Shanghai CU-1-CCNMM at about
55,515 yuan ($8,900).
Buyers have paid premiums between $70 and near $90 a tonne
over the cash LME prices this week to secure bonded
stocks in Shanghai, up from premiums of $65 to $85 a tonne at
the beginning of this month, traders said.
The firmer spot metal price was attributed to reduced supply
from two large refined copper producers that are currently
conducting maintenance and because some producers were not
willing to sell large volumes at prices below 56,000 yuan,
One of the producers down for maintenance, Baiyin
Nonferrous, plans to reopen its 160,000-tonne-a-year facility on
April 15, a source at the firm said.
Power cable manufacturing plants in the eastern industrial
region have received more orders in the past two weeks, also
pushing up demand for physical copper, Jing Chuan, chief
researcher at Citic Futures said.
The power sector accounted for near half of China's 7.7
million tonnes of refined copper consumption last year,
according to data from state-backed research firm Antaike.
The demand from fabricators and the power sector has not yet
boosted orders for forward inbound shipments of spot refined
copper, however, because stocks in bonded warehouses in Shanghai
remain high, traders said.
Stocks are currently down more than 10 percent from a record
high reached in January.
Bonded stocks in Shanghai were estimated by traders at about
850,000-870,000 tonnes last Friday versus about 910,000 tonnes
in late February and a record of around one million tonnes in
($1 = 6.2157 Chinese yuan)
(Reporting by Polly Yam; Editing by Tom Hogue)