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China copper imports seen unlikely

HONG KONG: A rally in London Metal Exchange (LME) copper prices means China is likely to withdraw as a buyer from the world market especially as domestic prices are lagging international levels, traders said on Monday.

"At the current price, I don't think the Chinese will place any big orders," said a Shanghai-based trader at an international trading firm.

Three month LME copper was holding around 3-1/2 month highs near $2,610 a tonne in early London trade.

"The China market is quiet at the moment, simply because LME prices are quite strong," a Hong Kong-based trader at a Chinese firm said.

"The domestic (physical) price is not following very closely," he said, adding that local Chinese copper prices were around 25,900 yuan a tonne.

"When you add the customs tax and the value-added tax, there's no profit at all for imports," he noted.

China slaps an average 17 percent value-added tax on imports, in addition to customs duties.

High LME prices compound an already tight supply situation as China's peak copper demand season kicks in, traders said. "Starting in the second quarter and right up until October is the peak season," a source at a Chinese trading firm's Hong Kong arm said, adding that demand was more than supply. Cyclical demand is heightened at this time as the production of air-conditioners increases, he said. Other sectors include wiring, brass products, electronics and chemicals.

Domestic copper inventories are low, according to another trader just returned from visiting a copper refinery in China.

"Basically we are selling off our daily production," the source said, noting that the refinery's inventory of copper cathodes had dropped to under 20 tonnes.

Other factories in China had also recently reduced inventories, he said.

"At the end of 1995 China had some surplus and that surplus has been eaten up because of reduced imports," he added.

China's output of copper products reached 82,500 tonnes in January and February of 1996, up 3.12 percent compared to the same period last year.

Meanwhile, China's state enterprises still suffer a shortage of credit, mainland-based sources said.

Although the Chinese government has embarked on a policy of selectively extending credit to enterprises in key industrial sectors, in practice money is hard to come by, they said.

"People who need to import raw materials still run into major problems," one trader said.

China launched austerity measures in mid-1993 in a bid to control rampant inflation and cool down its overheated economy.

Shanghai copper futures opened sharply up on Monday, traders said earlier. The three-month July 1996 contract opened at 26,100 yuan (US$3,133) a tonne, an increase of 290 yuan from Friday's close.-Reuter