London 08/01/2016 - China's State Reserve Bureau (SRB) completed its purchase of 150,000 tonnes of copper cathodes via a tender on Friday, sources familiar with the matter told FastMarkets.
The purchase price was 36,300 yuan per tonne, with the bulk of the metal to be delivered within the next three months, a first source who present at the meeting said.
"There will be a rough 50,000-tonne target for delivery for each month and it will be transported to the SRB's warehouses," he said.
Delivery will take place to the SRB sheds adjacent to the warehouses of those major smelters that participated in the tender, he added
Smelter officials are not ruling out further tenders by the SRB later this year, a Shanghai-based copper analyst said.
SHFE prices failed to respond positively - the March contract closed 0.9 percent or 310 yuan lower at 35,560 yuan per tonne on Friday and it closed at 35,170 yuan on Monday after dropping to a three-week low of 35,080 yuan earlier.
"[But] metal is in tight hands - there is not a lot of stock available given [the smelters'] long-term contract commitments," the analyst added.
The impact of this deal will only become apparent from next month, a representative at a second smelter with direct knowledge of the deal said.
"The market underestimates this stockpiling - premiums and prices will both be lifted after the Chinese New Year when demand recovers but there isn't much available in the spot market," he said.
The SRB's purchase will remove most of the surplus on the spot market, a hedge fund-based copper analyst added.
"What's more, current stocks aren't high - if demand picks up sequentially into the second quarter of 2016, there will be a visible deficit," the analyst also said.
Stocks in bonded zone in Shanghai were at around 420,000-440,000 tonnes at the end of December, with domestic copper stocks or so-called "social inventories" at warehouses at around 220,000 tonnes, the analyst estimated.
On the LME, copper stocks stood at 238,625 tonnes on Monday - a year ago they stood at 187,475 tonnes - while SHFE stocks stood at 188,571 tonnes as of January 8.
This was the first time in several years that the SRB has bought copper via tenders for domestic metal rather than overseas brands, several sources said.
"Apparently, the government aims to save the [local] copper smelters. That's why it is going to buy 150,000 tonnes in bulk within two or three months rather than monthly average buying it has done in the past," the analyst added.
(Additional reporting by Vivian Teo, edited by Mark Shaw)