Spot Copper Premiums Fall on China's Bonded Stocks

HONG KONG, July 9 -- Premiums on spot refined copper cathode have halved in the past 10 days as bonded stocks swelled and import margins collapsed, traders said on Wednesday.

    Scrap merchants whose imports have been stuck in and around Hong Kong and Guangdong for more than one month because of the recent tightening of customs checks in Guangdong have resold imports of refined copper cathode at lower premiums.

    Those merchants had booked refined copper cathode imports in previous months when margins had increased. The bulk of the copper was scheduled to arrive during the period from May to September, said a manager at a trading and investment firm, which last week bought 1,500 tonnes of such copper from a scrap merchant.

    "We paid a premium of less than $40 per tonne for 1,500 tonnes of CCC copper," the manager said. The copper was produced by the world's top copper producer, Codelco, and had been delivered to Hong Kong.

    Traders in Shanghai said bonded copper in the city was being offered at premiums of $70-$80 per tonne over cash London Metal Exchange copper prices MCU0, down from late June's offers at premiums of $80-$90 for spot copper for delivery in a few weeks.

    "Bonded copper was sold at premiums of $80, then $70, and now around $50," a trader at a large Chinese trading house in Shanghai said.

    But fewer buyers were willing to take the bonded stocks as the arbitrage window -- buying from the LME MCU3 and selling on the Shanghai futures prices <0#SCF:> -- has closed since late May.

    The collapse of import margins was encouraging importers to put their copper that had been booked in April-May and already arrived in Shanghai ports in bonded warehouses.

    More than 100,000 tonnes of refined copper cathode may be stored in bonded warehouses in Shanghai ports, traders estimated.

    Around 50,000 tonnes of copper may also be sitting at bonded warehouses in ports in Guangdong, the trading and investment firm manager said, adding that low storage fees had prompted his firm to store 1,500 tonnes of copper there.

    He said the firm was willing to take more copper from scrap merchants at low premiums, though the copper would have to be put into bonded warehouses in China to wait for higher prices.

    Guangdong, a popular destination for international copper scrap, has tightened customs checks on metal scrap since May with no public explanation, while traders believe the move aims to crack down on tax evasion, given that some scrap importers had misreported metal content in imported scrap for years, resulting in smaller payments of a 17 percent value-added tax.

    "We have clients whose copper scrap has been stuck in Guangdong for at least one-and-a-half months. And that is freezing up a lot of cash for them," a scrap trader said. 

    "If the movement of declaring the scrap gets faster from now, it will still take at least two months to clean up the pile."

    Traders estimated more than 10,000 containers, or 200,000 tonnes of copper and aluminium scrap, were stuck in and around Hong Kong and Guangdong as of late June.

    (Source: Reuters)