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China Copper Premiums to Narrow on Oversupply, CBI China Says 

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SMM Weekly Review and Forecast (May 4-May 7)

May 10 (Bloomberg) -- Copper premiums in China, the world's largest user, are not likely to sustain last week's gains as supplies in the country are still outpacing demand, according to a researcher.
Premiums paid by Chinese importers, typically a good indicator of demand, increased to between $70 and $100 a metric ton over the London Metal Exchange cash price last week, up from $60 to $80 last month, said Steven Zhou, an analyst at Shanghai Metals Market, a unit of researcher CBI China.
&quot;Premiums went up last week as the arbitrage turned positive but not many deals were done,&quot; Zhou said today by phone from Shanghai. &quot;Premiums should come off again as we're still facing a small oversupply situation in China. When prices go up, metal starts flowing out of bonded warehouses.&quot; Traders store shipments in a bonded zone before duties are paid.
Copper futures in China traded at a premium to their London Metal Exchange counterparts after dropping 4.6 percent in the three days through May 6, compared with a 6.5 percent decline in London. Copper for three-month delivery on the London Metal Exchange snapped a four-day decline, gaining as much as 2.1 percent to $7,092 a ton today. Futures on the Shanghai Futures Exchange rose as much as 3.5 percent to 56,420 yuan a ton.
&quot;Sharp declines on the LME, largely driven by the Greek debt crisis, mean SHFE prices are now trading at almost flat to LME prices,&quot; Macquarie Group Ltd. analysts including Shanghai- based Bonnie Liu said in a report dated today. &quot;With traders' expectations of an LME recovery in coming days, along with still-strong order books from China, there has been a surge of interest in arbitrage trades.&quot;
'Robust' Consumption 
Shanghai copper prices include 17 percent value-added tax and import fees.
The expectation for lower premiums is not an indication of China's demand at the moment, said Zhou.
&quot;Anecdotal evidence suggests that consumption is robust, especially from downstream producers such as the copper plate makers, however high prices have deterred these users from stockpiling the metal,&quot; Zhou said. &quot;Last year, the market was in a bit of a frenzy on expectations demand will outpace supply, so people were rushing to buy even when the arbitrage did not favor imports as they felt they could sell the metal off at higher prices.&quot;
Imports of copper and products by China jumped 63 percent to 4.29 million tons last year, according to customs data. Prices more than doubled last year, driven by the country's $586 billion stimulus program, which included spending on infrastructure and state stockpiling.
Prices in London have fallen 4 percent this year on concern China's measures to rein in lending and curb property speculation will damp demand for the metal used in construction and automobiles.
China's Curbs 
China has moved to curb loans for third-home purchases, increased down-payment requirements and higher mortgage rates announced in the past month. The government has ordered banks to set aside more deposits as reserves three times this year.
The Chinese economy is &quot;set to slow and not collapse,&quot; Macquarie's Liu wrote. &quot;Fiscal stimulus measures to encourage consumption of consumer durables remain in place. The build-out of second- and third-tier cities remains a robust underlying driver of the economy, and exports to the developed world are reportedly looking set to remain strong.&quot;
Copper prices this year &quot;will largely be dictated by what's happening in the external environment, such as Europe's debt crisis,&quot; said Zhou. &quot;Good demand in China won't be able to trigger a rally in prices as users would rather buy domestic than overseas metal once it gets expensive.&quot; 
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China Copper Premiums to Narrow on Oversupply, CBI China Says  | Shanghai Non ferrous Metals

China Copper Premiums to Narrow on Oversupply, CBI China Says

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