Copper down after Chinese May imports fall

LONDON: Copper dipped on Friday after Chinese trade data showed a surprising fall in copper imports last month, but expectations that June inflows could pick up limited losses.

Three-month copper on the London Metal Exchange was down 0.5 percent at $9,010 a tonne at 0954 GMT, after closing at $9,055 on Thursday.

China's imports of unwrought copper and semi-finished copper products dropped 3 percent in May, after falling 13.7 percent in April, because of high inventories. Analysts and traders had expected a slight rise.

But analysts say demand in China, the biggest consumer of copper, remains strong and that consumers will start buying again this month as inventories are run down.

"It may be that the May data is a little bit too soon to see the full impact of destocking," Natixis analyst Nic Brown said.

"But if we get a weak number in June as well, I would find that worrying. The question is whether what we are seeing now are the repercussions of tightening measures in China."

INVENTORIES

Copper stocks in bonded warehouses in Shanghai are estimated to have fallen by 50 percent or more from above 600,000 tonnes earlier this year as merchants sold the material into China's backwardated market to take advantage of strong prompt prices.

"Bonded warehouse stocks appear to have displaced demand for spot imports," said Judy Zhu, an analyst at Standard Chartered in Shanghai.

"But we expect to see a sharp rebound in June, and traders will have had to be more aggressive bringing copper through customs. A 20 percent rebound from the current levels is possible."

On Friday, figures showed that Shanghai copper warehouse stocks fell 3.4 percent, or 2,888 tonnes, from last Friday, but LME stocks of the metal are at their highest since last May.

"Future demand for imports is likely to recover as the domestic destocking process comes to an end and the SHFE/LME price arbitrage window reopens," ANZ Research said in a note, referring to the price differences between metal traded on the London Metal Exchange and the Shanghai Futures Exchange.

Copper was also supported by data showing shipments into the United States rose for a second straight month in April despite the weak housing market there. Copper is used mainly in building construction.

Global supplies of copper remained tight but showed some sign of relief on Friday.

Output at the world's No. 5 copper mine, El Teniente in Chile, is likely to return to normal within days, the company said, after thousands of contractors ended a 16-day strike.

And Japan's third-biggest copper producer said on Friday it would resume operations on July 1 at its 20,000 tonne per month Onahama copper smelter, shut since the March 11 earthquake and tsunami.

Copyright Reuters, 2011