MELBOURNE: China is expected to step up copper imports in coming months as a weaker yuan opens up arbitrage opportunities and demand picks up, partly fuelled by a boom in China's property market, analysts and traders said.
An improvement in demand from the world's top copper consumer could stem an outflow of its excess production into global markets, pushing prices to a stronger finish to the year after trading basically flat across 2016.
"Chinese demand has been better than some have expected this year," said analyst Matthew Wonnacott of mining consultancy CRU. "There are some risks to the upside that we weren't seeing 3 months ago."
China's refined copper imports have fallen for the past three months, slumping 31 percent in September from a year earlier, partly as China has produced more metal after surge of concentrate supply from Peruvian mines this year.
Year to date, however, imports are still up 9.8 percent at 2.8 million tonnes after high local prices fuelled a first quarter jump in imports.
Traders said a two-week slide in the yuan had again boosted local Shanghai copper prices, opening an arbitrage opportunity for imported copper.
At the same time, increased demand has boosted the premiums for delivery of physical copper from metal in Shanghai's bonded zone.
Premiums have climbed $20 in the past week to $85, the highest since March, and are expected to rise further, traders said.
China's copper demand has been running strongly at around 3.5 percent this year, fuelled by a boom in property, power grid investment, white goods and autos.
Manufacturers of white goods such as refrigerators are set to begin restocking, having sold off inventory in the first half, Wonnacott said.
CRU sees China's copper demand growth slowing to 2.3 percent in 2017, but with upside potential if the government renews stimulus measures.
Meanwhile, concerns that Beijing's efforts to cool its hot property market will quickly rein in copper demand are overdone, said Ivan Szpakowski, Chief Investment Officer of Academia Capital, a U.S.-based emerging markets and commodities-focused hedge fund.
"Chinese copper demand for the remainder of this year and the first half of next year is going to be quite strong ... in percentage terms, certainly much stronger than a year ago," he said.
"If you look at how long it took the government to cool previous rallies, it takes months, and they've only just started. Construction activity and metals consumption lags (prices), which means that the bull cycle still has a way to run."
Residential and commercial buildings account for around 15 percent of China's copper demand, while power accounts for roughly half. Demand for China's power grid sector is up by 33 percent in the first eight months of the year, according to Standard Chartered.
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