HONG KONG, May 15 (Reuters) - China is likely to import more refined copper later this year as metal inventories in the country will gradually fall, a senior analyst at trading house Trafigura said.
China, traditionally a large net importer of copper, brought in 746,692 tonnes of refined copper in the first quarter, down 12.6% year-on-year and the lowest first-quarter import level since at least 2015, Chinese customs data showed, sparking weak demand concern. Copper imports into China usually correlate with how open the import arbitrage window is, which has been mostly closed this year. Arbitrage involves selling and buying metal across different locations, taking advantage of the price difference between the areas to make a profit. China's copper inventories, as reported by the Shanghai Futures Exchange, are currently higher than supplies reported by exchanges in London and the U.S.
"As we move through the year and China draws that stock, then the arbitrage will flip so that tonnage will move back into China," said Graeme Train, head of metals and minerals analysis at Trafigura.
"The drivers of the arbitrage over Q1 is much less to do with the strength or weakness of Chinese demand and much more to do with a very, very low level of available inventory outside of China," Train said. Rising Chinese refined copper production, which hit a record high 1.05 million tonnes in March, also contributed to higher inventories in China compared with overseas market.
The Yangshan copper premium , which reflects the appetite to import the metal into China, has fallen by half since mid-March to $24.50 a tonne by the end of last week. "I don't think there's a lot of hidden stock in China. We've passed the highest point of stocking in China and seeing that run down continually and as that inventory starts to disappear, premiums will respond," Train said. Storing metal has also become more expensive because of the higher interest environment following governments' efforts to tame inflation.
"There is a desire by the metals consuming value chain to hold the minimum amount of inventory now, given high interest rates," Train said. "Not only do we have low visible inventory of these metals, but we also are approaching a point of having a very low value chain stock of everything that has metal in it," he added.
Copper stocks across markets China copper stocks seasonality chart
(Reporting by Mai Nguyen and Siyi Liu in Hong Kong; Editing by Christian Schmollinger) mai.nguyen.thomsonreuters.com@reuters.net))
