China Copper Premiums Steady; Lower Prices Could Boost Charges

SINGAPORE, Mar 08, 2012 (Dow Jones) -- Chinese copper premiums could rise modestly in the next few weeks as consumers take advantage of a recent decline in prices on the London Metal Exchange and demand for domestic downstream products picks up, industry participants said.

Copper premiums in Shanghai are around $40-50 a metric ton on a cost, insurance and freight basis, level with mid-February but down from $110-130/ton in mid-January, traders and analysts said.

Strengthening demand from end-users and reduced availability of discounted parcels in ports could push charges higher in coming weeks, traders said.

A 2.6% drop in LME three-month prices this week has also tempted some buyers back to the market, a trader in Shanghai said.

"There has been a lot of demand this week," in response to the falling prices, she said. Three-month copper is trading around $8,350/ton on the LME compared with $8,580/ton at the end of last week.

Traders said they had expected demand to pick up this month after an extremely slow start to the year, as consumers held back from the market due to slow downstream consumption.

While demand will rise in the short term, industry participants said they're not expecting a sharp rise in premiums because of high stock levels, tight domestic credit conditions and persistent macroeconomic uncertainty in the euro zone.

"It seems there's still more supply than demand, so I don't think [premiums] will rise a lot over the next short period," a second Shanghai-based trader said.

Stocks in bonded warehouses are around 450,000 tons compared with around 250,000 tons in early January, analysts said. Shanghai Futures Exchange copper stocks rose by a net 5,401 tons last week to 221,487 tons.

LME stocks have declined sharply since the start of the year, but much of the metal leaving LME warehouses has been destined for China, traders said. LME copper stocks dropped by a net 2,675 tons Wednesday to a total of 280,900 tons, and are down 24.4% since the start of the year.