Copper Premiums in China Decline to Four-Month Low (Update1)

Aug. 12 (Bloomberg) -- Copper premiums in China, the world's largest user, slumped to a four-month low this week as higher prices weighed on demand and supplies remained ample.

Premiums paid by Chinese importers over the London Metal Exchange cash price dropped to as low as $70 a metric ton on a cost, insurance and freight basis to Shanghai this week, said Grace Qu, a Beijing-based consultant at CRU International Ltd. That's the lowest level since April and down from this year's high of $160 last month, she said.

Copper in London gained 12 percent in July, when imports of the metal and its products by China climbed for the first time in four months as traders sought profits by buying the metal in London and selling it in Shanghai. The drop in premiums shows an unwillingness to buy overseas metal as it is now unprofitable, said Li Ye, an analyst at Minmetals Starfutures Co.

"It's a sign of both current demand weakness and an expectation for slower consumption in the months ahead," Zhao Kai, an analyst at Jinrui Futures Co., said from Shenzhen. "Domestic supplies are also ample, with stockpiles at bonded warehouses said to be quite high." Traders store shipments in a bonded zone before duties are paid.

Copper futures in Shanghai traded at a discount to prices on the London Metal Exchange after rising 5.9 percent in the past month, compared with a 8.1 percent gain in London. Prices in London reached a three-month high of $7,527 on Aug. 4.

High Prices

"We have seen buyers shy away from high prices and as the arbitrage window remains closed, we may see imports moderate and this could keep premiums from falling further," Guo Zongxi, an analyst at Shanli Futures Co., said from Ningbo. Arbitrage traders try to profit by buying metal in London and selling it in Shanghai, exploiting the gap in prices.

The metal for three-month delivery in London dropped today for a third day, falling as much as 0.7 percent to $7,150 a ton. Futures on the Shanghai Futures Exchange shed as much as 1.4 percent to 55,910 yuan ($8,238) a ton. Shanghai copper prices include 17 percent value-added tax and import fees.

"The hot summer in China's north helped keep order books for air conditioner manufacturers full in the first half of the year," said Ren Gang, an analyst at Maike Futures Co. Still, "copper tube demand will disappear as the weather turns cool."

"Chinese consumers are very price sensitive and anecdotal evidence shows buying by cable and wire makers has already started to slow," Ren said.