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China copper demand picks up after summer lull

* Traders importing copper as arbitrage improves

* Demand growth still seen slowing to 0.8 pct in H2 -CRU

* Copper prices to average $4,700 a tonne in Q4 -CRU

By Melanie Burton

MELBOURNE, Sept 12 (Reuters) - Emerging Chinese copperdemand after a summer factory lull and buying by traders buoyedby cheap premiums and weak global prices looks set to fuel arecovery in China's copper imports this month after a plunge to12-month lows in August.

The buying interest could help stem a surge in Chinesecopper exports, but may not be enough to offset the impact of anexpected flood of new supply this year, traders and analystssaid, putting further pressure on prices into 2017.

"We're coming out of the summer lull," said analyst MatthewWonnacott of CRU in Hong Kong. "But in terms of demand, we'restill a little bit cautious."

While a pick-up in Chinese home prices was fuelling freshreal estate development, huge copper orders from China's powersector that had propped up demand in the first half were set tofade, Wonnacott said.

CRU expects China's copper demand growth to slow to 0.8percent in the second half, from 2.1 pct in the first half. Itsees prices averaging $4,700 a tonne in Q4, up from around$4,600 a tonne currently , then falling to below $4,500in 2017 as mine supply grows.

China is a net copper importer, but has been increasinglybeen producing refined material from imported concentrate.

China's improved copper demand has been reflected in a risein premiums to $50 last week from around four-year lows at $45 , and in the first drop in China's bondedinventories since April, according to brokers.

"We believe this reflects improving onshore demand inSeptember, supported by both seasonal trends and a rebound inactivity in southern China following flood-related disruptionsin July," Standard Chartered said in a report.

"Feedback from fabricators onshore also points to a pick-upin orders from the construction sector in recent weeks."

Prices not far from six-year lows and historically cheappremiums had convinced some traders to stock up. Local pricesare still below global prices, meaning traders take a loss toimport metal, but bank on a rise in prices or higher yieldingopportunities elsewhere.

"The import loss was at a level that became a bit morebearable, so there is going to be a bit more imports of metalsmoving from bonded to China stocks from late August toSeptember," said a trader at a merchant in Singapore.

Still, an oversupply in China is unlikely to quicklydisappear. Exports of its surplus requirements helped boost LMEcopper stocks by 60 percent in the past month.

And despite signs of a pick-up, end-user demand could stillface headwinds.

"I think we're going to have a slower Q4 across allindustrial commodities. Not a storm but we could see somecorrections into the fourth quarter," the trader said.

(Reporting by Melanie Burton; Editing by Richard Pullin)

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