Senior analysts at Trafigura, the trading house, said recently that China was likely to import more refined copper later this year as domestic stocks gradually declined.
China imported 746,692 tons of refined copper in the first quarter, down 12.6% from a year earlier and the lowest volume for the period since at least 2015, according to customs data. The data raised concerns about weak copper demand in China.
China's copper imports usually correlate with the opening of an import arbitrage window, which has mostly closed this year.
According to inventory data reported by the exchanges, copper inventories on the Shanghai Futures Exchange are now higher than those on the LME and COMEX.
"It's a lot more than that," said Graham Gaffer, head of metals and minerals analysis at Trafigura. 'As the year progresses, China will run down inventories, the arbitrage window will reverse and copper stocks will return to China,' Mr. Train said. The arbitrage window in the first quarter was driven less by the strength of Chinese demand and more by the very low availability of inventory outside China.
Rising Chinese refined copper production, which hit a record high of 1.05 million tonnes in March, has also led to higher inventories in China than in overseas markets.
The Shanghai Yangshan premium has halved since mid-March to $24.50 a tonne at the end of last week. That reflects cooling demand for imported copper in China.
Train said he did not think there was a lot of hidden inventory in China. China's inventories have peaked and are shrinking. As inventories continue to fall, the import premium will respond.
As global interest rates rise, so does the cost of capital to store metals. Given the high interest rates, metal consumption chains want to hold inventories as low as possible, says Mr Train. So not only are visible stocks of these metals low, but we are approaching a point where stocks are low in all value chains that contain metals.
