China Copper Premiums Rise on Modest Demand Increase

Jul 04, 2012 (Dow Jones) -- Chinese copper premiums have edged upward over the past few weeks due to a modest pickup in demand from fabricators and speculators, Shanghai-based traders said Wednesday.

Copper is trading at a premium of $60-$80 a metric ton over London Metal Exchange prices on a cost, insurance and freight basis in Shanghai, an increase of $10-$20/ton from three weeks ago, traders told Dow Jones Newswires.

While the rising premiums indicate more buying activity over the last few weeks, Chinese copper demand remains broadly muted and consumption rates at fabricators' plants are at low levels, a trader in Shanghai said.

"Demand is a little better, but it's still not so good," she said.

End users are concerned about a slowdown in the Chinese economy that is curbing domestic demand, and also about continuing macroeconomic turmoil in the euro zone that could affect demand for copper-bearing products in European markets, a second Shanghai-based trader said.

But stimulus measures announced by the Chinese government in late May and signs of a turnaround in China's struggling real-estate sector could help boost demand and support premiums over the next few months, a third Shanghai-based trader said.

The average price of housing in 100 major Chinese cities rose in June compared with May after nine straight months of decline, The Wall Street Journal reported Tuesday, citing a survey of property developers and real estate firms.

Copper is sensitive to news from the Chinese property market because of its applications in construction.

However, traders aren't expecting sharp increases in premiums in the second half of the year, due to a substantial stock overhang in the Chinese market. Analysts estimated bonded warehouse stocks in China were around 650,000 tons in late June compared with 250,000 tons at the start of the year.

Shanghai Futures Exchange stocks totaled 139,442 tons June 29, up 5.3% since the start of June and 32.5% in the year to date.

Sustained volatility in LME copper prices is also deterring buyers from building inventories, traders said.

Three-month copper is trading around $7,715/ton, down 1.3% from its previous settlement but 3.9% higher since the start of June. In recent weeks, copper has taken support from signs of progress in tackling the euro-zone debt crisis and hopes for more stimulus from European, Chinese and U.S. policymakers.