High prices and low credit hamper copper stockpiles

09:03, January 27, 2011      

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Fabricators in China are likely to stock less copper than normal ahead of the lunar new year holiday because of high prices and tight credit, traders said on Wednesday.

Suppliers were keen to sell more to obtain cash. That could weigh on prices and cut China's spot copper imports until many fabricators resume full operations in late February or early March.

"This year, pre-holiday purchases by fabricators have not been as good as previous years. High prices are making them cautious in building stocks," a trader at a large copper smelter said.

Fabricators, which use refined copper and maintain full or partial production during the holiday, built copper stocks in previous years because the spot market closes during the lunar new year festival.

"Consumption fell when the price was above 70,000 yuan ($10,635.55) a ton. The prices for downstream products have not caught up with copper price hikes," said a trader for a smelter in Zhejiang province.

Spot copper traded at multi-year high above 70,000 yuan a ton in China on Tuesday, a rise of 18 percent from a year earlier.

The smelter trader added that merchants had not received credit from banks, and did not have much cash to stock up on copper.

China's benchmark money market rate registered its biggest single-day jump on Tuesday, sparked by the central bank's aggressive inflation-fighting drive to tighten liquidity ahead of the lunar new year, when cash demand is at its highest.

Some Chinese banks raised interest rates on loans to comply with government orders to rein in credit growth after another lending surge at the start of the year, media reported on Wednesday.

Tight credit and high copper prices are encouraging Chinese smelters and investors to sell more metal before the holiday, traders said.

"Some importers that use copper for financing have been selling metal in the spot market to obtain cash this week despite the poor arbitrage," the trader at the large smelter said, referring to Chinese copper prices that are lower than those for imports.

"But the more metal sold and larger discounts mean more concerns for buyers in building reserves," he said.

High-bonded stocks, or material not yet having incurred a 17 percent value-added tax, also kept buyers from building stockpiles.

Source:China Daily
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