London 20/09/2016 - Copper has managed to hold around one-month highs on the LME Tuesday despite expectations of further deliveries into listed sheds in Asia, suggesting increases have been priced in, Citi Bank said.
The metal recently traded at $4,770 per tonne, down $6 on Monday's close after a strong rise last week. It continues to find resistance at $4,800.
In the quarter to date, LME copper stocks have increased 154,800 tonnes but this has been offset by declines of 95,000 tonnes in Chinese bonded warehouses and 26,000 tonnes in SHFE sheds, the bank said in a note on Tuesday.
"More interesting… is that the LME copper market widely believes that a further 100,000-150,000 tonnes will be delivered into LME sheds over the next few months, and yet such an expectation still fails to undermine prices," it said.
"Most physical market participants we have spoken to expect warrants associated with deliveries to be relatively quickly cancelled, and this have no lasting negative price impact," it added.
Copper premiums have also found support from the opening of the LME/SHFE arbitrage window after Chinese market participants returned from summer breaks at the end of August.
Shanghai copper cathode premiums climbed to $50-60 per tonne on a cost, insurance and freight (CIF) basis and in warehouse last week, according to FastMarkets calculations. While this is up $5 from the previous week, it is still $40 lower than this year's high of $90-100 in February.
Further support has come from better-than-expected Chinese real copper demand due to a resurgent housing market, alongside recoveries in air-con and household white goods output and power grid spending.
This is reflected in recent Chinese data - at 6.3 percent, growth in industrial production beat expectations of 6.2 percent and helped to scale back short positioning.
In June, LME-registered warehouses in Asia started to pay higher incentive to attract in metal - some were said to be in the region of $65, well above Chinese bonded levels. But payments have since fallen to below $50 or roughly around where Chinese bonded premiums are, suggesting the incentive to shift metal inventory from China may slow, the report said.
Still, given the September pick-up in copper buying from China, combined with improving manufacturing data, Citi Bank expects Chinese copper imports to rise month-on-month ahead of the end of the year.
"This will we believe be sufficient to support prices largely in a $4,750-4,950 range," it said.
(Editing by Mark Shaw)