Singapore 08/08/2016 - Market participants do not appear to be overly pessimistic about the decline in Chinese copper imports in July as they reckon the drop reflects a lack of import arbitrage opportunities and the digestion of domestic inventories.
China’s imports of unwrought copper and copper products fell 14.3 percent month-on-month to 360,000 tonnes in July, according to preliminary data published by the country’s General Administration of Customs on Monday.
July was the fourth consecutive month of decline on a month-on-month basis for Chinese copper metal and copper product imports.
The lack of import arbitrage opportunities since late-January has been pinned as the main reason for the July import decline by industry watchers.
“In July this spread [between Shanghai Futures Exchange and London Metal Exchange] was negative, reducing the appeal of imports to physical traders,” said ANZ Research in a report on Monday.
While the July imports had fallen on a month-on-month basis, the number was still up 3.4 percent year-on-year, it added.
Relatively weak July import numbers of commodities including copper are also likely the result of high inventories that were built up during the second quarter, the bank said.
Other than the import arb window being closed, Chinese copper imports had fallen in June due to the weak demand season and high inventory levels in the country, Shanghai Metals Market (SMM) said in a report on Monday.
Downstream copper users are mainly digesting domestic copper inventories as high stock levels and weak off-peak demand pressures local copper prices downwards, the Chinese metals research firm said.
Strong Chinese copper production has decreased the need to import as well, said a Shanghai-based trader.
“Judging from Chinese copper concentrate imports and the current import treatment charges, there won’t be any shortage of refined copper in the country,” he said.
Chinese copper ore and concentrate imports rose 2.2 percent month-on-month to 1.38 million tonnes in July, taking year-to-date imports to 9.41 million tonnes, up 36.1 percent year-on-year.
Chinese refined copper production meanwhile rose 7.6 percent to 4.03 million tonnes in the first half of this year.
The drop in imports should not be seen as negative news, SMM added.
“The decline in imports will help consume domestic inventories and relieve pressure on domestic supply, hence providing support for copper prices instead,” the Chinese metals research firm said.
Copper contracts on the Shanghai Futures Exchange had a muted response to the decline in Chinese July copper imports. The most active October copper contract had continued to drift after the release of the data in the morning. It finished at 37,540 yuan per tonne on Monday, down just 80 yuan from the previous day’s close.
Editing by Archie Hunter