May 20 (Bloomberg) -- Ample supplies of copper in China, the world's largest consumer, and a slowdown in demand in the second half will limit gains in prices, Maike Futures Co. said.
"China is not short of copper at the moment," said Deng Hong, a Sichuan-based analyst at Maike Futures, a unit of Maike Group, one of the country's largest copper importers. "Demand is quite good but there is enough copper. Coupled with the onset of slow seasonal demand and the uncertain global economic environment, domestic prices should face some strong resistance at the 55,000 yuan to 56,000 yuan level."
Copper on the Shanghai Futures Exchange, which usually includes 17 percent value-added tax and import fees, rose 1.5 percent to 53,930 yuan ($7,899) a ton at the midday break. Futures in China traded at a premium to their London Metal Exchange counterparts after dropping 8.2 percent this month, compared with a 10 percent decline in London.
"Demand from makers of copper products, such as cable manufacturers, has been robust," said Deng. "Order books for July and August are quite full, but they held off buying raw materials last month when prices were more than 60,000 yuan. The orders were taken based on high copper prices, so now that prices have come off, there are many willing buyers."
The recent favorable arbitrage has meant that any metal leaving warehouses is "very quickly replenished," said Deng, who has been analyzing China's metals markets since 1999. This has kept premiums paid by Chinese importers over the London Metal Exchange cash price at $100 a ton, from $60 to $70 in March, she said in a phone interview today.
China's imports of refined copper were 754,581 tons in the first three months of this year, little changed from the same period last year, while shipments of scrap copper rose 34 percent, according to customs data.
"Last year's levels were exceptional because of stockpiling and investment demand, and looking at the numbers so far, China has over-imported in the first half and imports will definitely decline in the second half because demand will be weaker," said Deng, without giving estimates. "This won't be reflected in the refined figures as the scrap trade is now virtually gone, given the plunge in refined prices."
Benchmark copper prices in London have fallen 9.3 percent this year on concern that China's measures to rein in lending and curb property speculation will damp demand for the metal used in construction and automobiles.
"The impact of the government's credit tightening and property curbs will be felt in the second half," she said. "We're also expecting imports to slow because a cool summer this year has reduced demand for copper tubes used in air- conditioners."
China has moved to curb loans for third-home purchases, increased down-payment requirements and raised mortgage rates in an effort to prevent the property market from overheating. The government has also ordered banks to set aside more deposits as reserves three times this year.
"Copper prices have been affected by the financial crisis in Europe and uncertainties about China, including its monetary policies," said Deng. "Given the plunge in the euro, exports to the region will definitely decline, so I doubt the Chinese government will be raising interest rates or revaluing the currency anytime soon."