Hong Kong, 10 March 2011

China's imports of unwrought and semi-finished copper products sank 35.4 percent in the holiday-shortened month of February, casting doubt on demand from the metal's top consumer, but traders hope March inflows will be boosted by greater production from fabricators.

Monthly imports had been widely expected to fall in February, when China was away for a week celebrating the Lunar New Year, and because of high stocks, estimated at 2.2 times the output of December 2010.

The fall was, however, bigger than many expected, fanning demand worries in a market already spooked by record oil prices. Shanghai copper closed down more than 3 percent after the data. It dropped to an intraday low of 69,070 yuan a tonne, it weakest in two-and-a-half months.

"February's imports are lower than we had expected. In March, imports will grow, as businesses expect the government to loosen up the overly tight credit control and copper prices have fallen quite a bit," said Li Ye, an analyst at Minmetals Futures, previously called Minmetals Star Futures. "But whether imports will recover to January's level will depend on the credit environment and prices."

Imports dropped 26.9 percent from a year earlier to 235,469 tonnes in February, the lowest since January 2009 and well below January 2011's 364,240 tonnes which showed a gain of 5.7 percent on the month and of 24.7 percent on the year, data from the General Administration of Customs showed on Thursday.

MARCH IMPORTS SEEN UP

"If you take a bearish angle, now you would ask whether China's demand is as good as many have expected. Maybe the Chinese are not that good in dealing with high prices," Beijing Capital Futures analyst Xiao Jingo said. But Xiao said she expected imports to rise in March since many fabricators, who had halted operations for the Lunar New year, had been increasing output in the past week.

"The scale of increase would depend on prices." Three-month copper on the London Metal Exchange rose 30 percent last year and hit a record of $10,190 on Feb. 15 this year, while Shanghai copper prices touched their highest in nearly 5 years at 76,290 yuan per tonne at the same time, making merchants cautious about taking copper.

Traders said fabricators tended to cut refined copper purchases above 70,000 yuan a tonne or when supply of copper scrap rises and the discount of scrap to refined metal widens.

Traders also said some Chinese merchants had asked to delay term shipments that were set to arrive in late January and February and the bulk of these should arrive in early March.

Lower imports in February did not trim refined copper stocks in China, which are estimated at about one million tonnes. Of the stocks, 600,000-700,000 tonnes may be stored in bonded warehouses in Shanghai and more than 50,000 tonnes in bonded warehouses in Guangdong province.

The bonded stocks are refined copper that have arrived but have not paid the local 17 percent valued-added tax. Importers tend to temporarily store the metal in bonded warehouses when Chinese prices are lower than the cost of import.

Imports of copper scrap, an alternative material for both fabricators and copper producers, also dived 30.6 percent from the previous month and 10.7 percent from a year earlier to 250,000 tonnes in February. Traders said fabricators had increased buying of copper scrap in the past two months to replace more expensive refined copper, cutting the stocks in China.

ALUMINIUM

Fabricators' closures in February also cut demand of unwrought aluminium and semi-finished aluminium products, as well as aluminium scrap, which is used for the production of alloy in China, the world's top aluminium consumer and producer.

Imports of unwrought aluminium and semis dived 37.5 percent from the previous month and down 6.5 percent from a year earlier to 60,202 tonnes in February this year.

Scrap arrivals fell 39.1 percent from January and 17.6 percent from February 2010 to 140,000 tonnes. Many fabricators reopened operations earlier this month and have been increasing purchases of primary aluminium in the domestic market as the supply rose, traders said.

Stocks in China were estimated near 2 million tonnes in late February, the highest since August last year and 1.6 times of the metal production in December 2010.

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