Copper Stockpiles Double in Shanghai Bonded Warehouses on Advancing Price

Copper inventories in Shanghai bonded warehouses, where traders store shipments before duties are paid, have at least doubled in the past three months as rising prices deterred purchases by Chinese users, traders and analysts said.

Stockpiles in Shanghai bonded warehouses have climbed to as much as 300,000 metric tons, up from about 150,000 tons in late July, Na Liu, Scotia Capital’s China Strategy Advisor, said in an e-mail to Bloomberg News today. This is “conservative”， according to Guosen Futures Co. trader Lu Shaohan, who estimates the inventory level to be closer to 500,000 tons.

“We hear some warehouses are full and can no longer accept more metal,” said Fu Bin, an analyst at Jinrui Futures Co., a unit of Jiangxi Copper Co., China’s biggest producer. “Given the negative arbitrage recently, importers will lose money if they bring the metal into China.”

Copper in London traded at a premium to futures in China, rising 18 percent in the past three months compared with a 17 percent gain in Shanghai. Shanghai prices include a 17 percent value-added tax and import fees.

Three-month delivery metal on the London Metal Exchange gained as much as 1.6 percent to a 28-month high of $8,800 a ton today, trading within 1.6 percent of its record $8,940 reached in July 2008. Copper for February-delivery on the Shanghai Futures Exchange climbed to 68,520 yuan （$10,276） a ton, the highest price since March 2008.

Exchange Warehouses

“Domestic stockpiles in warehouses have been increasing as the rally in prices caused buyers to stay away and run down inventories,” said Wen Jinghai, an analyst at Bohai Futures Co. “It hasn’t been profitable to import copper so even metal that has been shipped as part of long-term orders may be sitting in bonded warehouses waiting for the arbitrage window to open.”

Copper inventories tallied by the Shanghai Futures Exchange stood last week at 106,851 tons, the highest level in two months, according to data provided by the bourse. Arbitrage traders and importers profit by buying metal in London and selling it in Shanghai, exploiting the gap in prices.

“There’s investment demand and physical demand and copper is now being driven almost solely by investment demand as consumers don’t want to buy at these prices,” said Hoohy Futures Co. analyst Gao Jingsong.

Falling premiums and rising treatment fees suggest supplies are enough to meet the current demand, according Ren Gang, an analyst at Maike Futures Co.

Copper premiums paid by Chinese importers over the London Metal Exchange cash price have dropped to around $80 a ton on a cost, insurance and freight basis to Shanghai, from around $120 at the beginning of October, according to traders and analysts. At the same time, spot fees paid to copper smelters in China by mining companies for turning ore into refined metal have nearly tripled to $80 a metric ton and 8 cents a pound.

“This situation will only be temporary as China remains a net copper importer,” said Maike’s Ren. “Physical buyers will have to return to the market once their inventories are depleted.”