Reuters reported that US copper traders are shipping cathode to China to take advantage of a higher local premium and a scarcity of scrap, a key raw material feed for Chinese smelters.
Market sources said that thousands of tonnes of US copper are sailing to China. These traders are making the biggest such arbitrage play for more than a year, taking advantage of strong Shanghai premiums and a scarcity of scrap.
The shipments from Long Beach to Shanghai which have been underway since early November, come as customs officials intensify checks on scrap imports following a change in policy in China 3 months ago.
US shipments, while small relative to China's total monthly refined copper imports of more than 300,000 tonnes had previously been rare this year and sporadic in past years. In the first 10 months of this year, China imported only 825 tonnes of US copper. Last year imports had spiked to nearly 42,000 tonnes almost double 2009 levels of just over 22,000 tonnes.
The quantities may be only a small portion of total monthly refined imports, which were almost 300,000 tonnes in October but traders are seizing the opportunity while they can ahead of the Chinese New Year in January.
Standard Bank strategist Leon Westgate attributing the interest in primary metal to congestion at major ports which has hindered delivery of scrap to smelters said that it's a short-term punt and a premium play. It's a short term anomaly helped by overofficious customs officers.
A physical trader at a large US firm has shipped cathode to Shanghai to take advantage of the higher premium in China compared with Europe and the United States. We saw the opportunity. We pushed for USD 140 but got USD 130.
Chinese premiums have shown signs of falling in the last month but are still higher than elsewhere. Spot premiums above the cash London Metal Exchange copper price are around USD 120 per tonne to USD 125 per tonne for metal already in bonded warehouses in Shanghai. Offers were at USD 130 to USD 150 depending on the volume compared with USD 140 to USD 170 in late October.
US premiums over Comex have hovered between 4 cents and 4.5 cents per lb for much of this year which equates to about USD 88 and USD 99 per tonne. ID: Premiums for material in Rotterdam over cash LME is between USD 40 and USD 60 per tonne.
Market sources said that buying interest picked up when the market fell to below USD 6,700 per tonne in October from over USD 9,100 per tonne at the end of August. Refined copper imports into China hit an 18 month high in October, the most recent month for data.
A shipping source familiar with the situation said that China's been stocking up copper. Thousands of tonnes are moving. It's started now and we're getting enquiries from others. It has been boosted by tightness in scrap supply due to congestion at major ports as customs authorities clamp down on checks of scrap imports and ban import licenses from being transferred or sold following the introduction of a new policy. Chinese smelters use a high proportion of scrap as their raw material feed.
Traders said that a sign that availability has been reduced is that the discount to Comex for copper scrap has been robust even when exchange prices tumbled. A UK scrap exporter confirmed his shipments have been slowed by congestion into southern Chinese ports. The exporter has seen buyers prefer primary metal over remelt or scrap as it is not under the customs clampdown.
The shipments from the States have coincided with a drawdown in London Metal Exchange stocks in Asia, which traders have attributed to movement of material to China. LME Asian warehouse stocks have more than halved to 61,400 tonnes from over 170,000 tonnes in August.
Mr Michael Jansen commodity analyst at JP Morgan Chase said that the copper bulls, pointing to the falling estimates for mine output next year and 500,000 tonnes of destocking, are ignoring the demand picture. They somewhat miss the obvious fact that demand is poor and getting poorer. Prices will not sustain this rally.
Other physical traders in the United States confirmed they were looking at shipping to China but cautioned that the window for such deals may close soon given that demand will plunge ahead of Chinese New Year in February. But with only seven weeks until the week-long national New Year holiday timing is all for those looking for a quick punt.
(Sourced from Reuters)
