London 06/01/2016 - The mooted purchase of 150,000 tonnes of copper by China's State Reserve Bureau (SRB) will have only a limited impact on the price, several industry sources said.
The deal will reportedly be complete by the end of the week, with participation from major smelters as well as some state-owned enterprises, sources familiar with the matter told FastMarkets.
But the effects of stockpiling are likely to be small because the total tonnages are not significant enough to tip the market into deficit.
"It might have bigger impacts on premiums but for prices… it will be short-lived. It's not a big amount of copper if you consider domestic stocks in warehouses and don't forget that demand in the first quarter is generally weak," a trader in Shanghai said.
Spot premiums in Shanghai on a cost, insurance and freight basis (CIF) basis were last at $75-85 per tonne while rates in bonded areas at $75-90.
The stockpiling might lead to the release of older state-acquired stocks, meaning that an equivalent volume of metal will be returned to the market, some sources suggested
"SRB have two kinds of stockpiling - one is for actual consumption such as making weapons but the other would be swapping some of their old stocks. If it is the latter, this stockpiling would be meaningless for prices," a consumer source in Asia said.
The most active SHFE March copper contract was last at 36,200 yuan per tonne, down 310 yuan on Tuesday's close, with close to 289,000 lots changing hands. On the LME, three-month copper fell to a two-week low of $4,593 earlier today before settling at $4,602.50 per tonne, a $42.50 loss from yesterday.
Buying 150,000 tonnes of copper - even at a cost of around $690 million - will not create a genuine shortage in the domestic market, a European trader said.
"One might argue that in the short term it would lift prices but in the long term it is not going to make a real difference as the SRB cannot keep buying," he added.
Prices are likely to come under pressure and could fall to $4,300-4,500 because demand is unlikely to recover until the second quarter, another Chinese trader said.
"What would really support prices are on the supply side is if miners were to announce further production cuts. Current prices are around the 85th percentile on the marginal production costs curve," he said.
Major Chinese producers have also been mulling a 200,000-tonne cut in sales volumes in the first quarter of this year but the size of the cut by each participating smelter has yet to be decided.
"I am concerned about the downside risk but copper prices on the LME have been trading in the narrow range of $4,550-4,750 for quite a while. There is no big reason for it to go lower or higher," the first European trader said.
(Additional reporting by Vivian Teo, editing by Mark Shaw)