SHANGHAI, Jul 10, 2010 (Dow Jones Commodities News Select via Comtex) -- China's appetite for base metals continued to slow down in June against a backdrop of reduced arbitrage opportunities and the beginning of a seasonally slow period for industrial metals.
Industry participants said copper imports may continue to decline in the next two months, but will likely see an uptick in September as copper consumers ramp up production and start restocking for early next year.
The world's largest copper consumer imported 328,231 metric tons of copper, copper alloy and semifinished products in June, down 17% from the previous month and down 31% from last June, according to preliminary data provided Saturday by the General Administration of Customs.
In the January-June period, copper, copper alloy and semifinished products imports were down 0.2% from a year earlier at 2.23 million tons, customs data show.
"Actually June data were slightly better than what people had expected, given a closed arbitrage window between Shanghai and London in the past few months," said Wang Zhouyi, an analyst with Shanghai Cifco Futures.
Regardless of supply-demand fundamentals, profit margins are usually an impetus for trading houses and copper consumers to buy from overseas markets, analysts said.
But the profitable arbitrage window remained closed in April and most time in May, resulting in losses of around CNY1,000-1,500/ton in importing, which "was the main reason that we see imports continue to drop in May and June" said Wang.
Meanwhile, imports of scrap copper, a frequently-used cheap substitute of refined copper for Chinese consumers, may fall in the following months as China started stricter monitoring of scrap metal imports in June, industry participants said.
The tighter scrutiny includes a requirement that scrap metals be sorted into containers by type, which could reduce the price advantage scrap copper has over refined copper.
Scrap copper importers in Guangdong province's Nanhai city have already cancelled their orders for the third quarter due to higher customs clearance costs and the smaller price advantage over refined copper, a Guangzhou-based trader said.
"For some scrap copper importers, the main purpose isn't to bring in the secondary material, but to smuggle something else with the metal so as to make more profits in the domestic market after it is imported...so if the government steps up in regulating the secretive practice, there's no point for them to do the business in the future," he said.
Scrap copper imports in June rose 6.1% on month to 350,000 tons, and imports in the first half of this year totaled 2.03 million tons, up 17% from a year earlier.