SHANGHAI, Jun. 20 (SMM) – The tight liquidity in Chinese markets gave a boost to copper imports for the purpose of financing, driving up premiums for imported refined copper to a four-year high.
China higher copper imports are also the result of falling domestic copper supplies and may help bolster international copper prices. Copper prices have fallen over 11% this year due to concerns over global economic recovery.
Chinese importers pay a part of expenses for copper imports through L/C issued by banks, and repay them two or three months later after selling these goods in domestic markets.
According to domestic traders, the tight liquidity in interbank markets during the past few weeks sent demand for finance-driven copper up.
China’s seven-day repurchase rate in interbank bond market rose above 6.8% in June, its highest since early 2012. Besides, banks needed more cash flow to for development of quarterly reports and to meet related requirements by the end of the quarter.
Companies often repay loans by the end of June, which create stronger capital demand, so some of them opt to import refined copper to generate cash flow.
Inventories in Bonded Warehouses Slip
Copper importers sought to purchase stocks at bonded warehouses or shipments expected to arrive at China’s ports recently. However, inventories in bonded warehouses and arrivals at ports slipped as importers increased copper purchases earlier this month when banks slackened loan issuance.
According to a large domestic trader, copper inventories in bonded warehouses of Shanghai have been falling sharply, while importing goods from LME’s Asian warehouses will costs longer time. Most goods of bonded warehouses of Shanghai and those to arrive ports in June were offered at premiums of more than USD 160/mt, and an increasing number of sellers raised premiums to USD 170/mt, a high never seen since early 2009.
Traders estimated copper stocks in Shanghai bonded warehouses have fallen to 400,000 mt, the lowest level since Q1 last year. The stocks were below 500,000 mt at the beginning of June and were above 600,000 mt by the end of April. This number was considered lower than normal levels as China’s monthly copper consumption is around 500,000 mt, and some expected premiums for imported copper to hit USD 200/mt.
Copper supplies in spot markets fell short as most of stocks in bonded areas were used for financing.
Editing by SMM