Demand last year driven by stockpiling, government spending

Copper imports by China may be cut in half from last year's record as the government rolls back stimulus spending and curbs credit growth, according to China Minmetals Nonferrous Metals Co, the nation's largest metals trader.

Shipments of refined copper may be about 1.5 million metric tons this year, down 53 percent from 2009, as China bids to prevent the economy from overheating, said Gu Liangmin, general manager of Minmetals' copper department. That's in line with 2008's volume of 1.46 million tons.

Lower imports by the world's largest metals user may help to reduce copper prices, extending this year's 12 percent drop. Futures more than doubled last year as government stockpiling in China and the country's $586 billion stimulus package boosted demand for the metal used in autos and construction.

"Without the liquidity and economic stimulus, we will not see a repeat of the exceptional year in 2009," Gu said yesterday in a phone interview from Beijing. "Demand last year was driven by stockpiling, investment demand and government spending."

Three-month delivery copper on the London Metal Exchange traded yesterday at $6,465 a ton compared with $7,375 at the end of last year. The contract surged 140 percent in 2009 as demand revived after the worst global recession since World War II.

China shipped in a record 3.18 million tons of refined copper last year, helping to boost stockpiles in the country by more than five times. Purchases by the State Reserve Bureau, which manages government stockpiles, included copper, Caijing magazine reported in June, citing Yu Dongming, an official at the National Development and Reform Commission.

'Pre-stimulus levels'

"Imports will moderate and return to pre-stimulus levels," Lin Yuhui, deputy general manager at Jinhui Futures Co, said from Shenzhen. Lin also forecasted that the country's copper imports will be about 1.5 million tons this year.

China's GDP growth accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007, adding to speculation that the country may step up efforts to prevent asset bubbles. The country's central bank last month raised the amount of deposits banks must hold in reserve, after guiding three-month and one-year bill yields higher.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange stood at 114,302 tons last week, the highest level since April 2004. Unreported stockpiles, including those held by producers and end-users, are "in excess of 1 million tons", Minmetals' Gu estimated.

'Not short'

Copper futures in China are trading at a premium to London Metal Exchange contracts, encouraging arbitrage, where investors attempt to profit from price disparities for the same asset in different markets.

"Even though the country is not short of copper at this moment, there will always be people who will buy when the arbitrage ratio is favorable," said Shenzhen-based Wang Xiaoli, an analyst at CITIC Futures Co.

Prices in Shanghai on Monday were more than 1,000 yuan a ton more than those in London, after accounting for China's 17 percent value-added tax, according to data compiled by Bloomberg. Still, China's copper market has since November been trading mostly in contango, where the metal for immediate delivery is cheaper than supplies with later dates, suggesting ample short-term availability.

China's imports of unwrought copper and semi-finished copper products are expected to have risen in January, fueled by strong domestic prices.

Copper imports

"Imports in January and February won't be low because of the prices," said Yang Changhua, analyst at State-owned research group Antaike.