China May Take Quarter of LME Copper Inventory, Hedge Fund Says

By Chanyaporn Chanjaroen

March 3 (Bloomberg) -- Chinese state stockpiling of copper may mean the withdrawal of about a quarter of the metal held in warehouses monitored by the London Metal Exchange, commodity hedge fund Ebullio Capital Management LLP said.

About 100,000 to 150,000 metric tons of LME-monitored copper will probably go to China in the next three months, Managing Director Lars Steffensen said in an interview yesterday. LME- tracked copper earmarked for withdrawal tripled in a week to 55,025 tons, or 11 percent of total exchange inventory.

“The Chinese aren’t going to buy gold -- they’re going to buy copper and other industrial metals for all the construction projects they have over the next few years,” said Steffensen, whose fund returned 25 percent from its start in July through January. “Copper will go to China, not the U.S. or Europe.”

Copper prices advanced for six consecutive years through 2007 as China overtook the U.S. as the world’s biggest user of the metal. Copper tumbled 54 percent last year as Japan, Europe and the U.S. fell into simultaneous recessions.

LME-tracked copper stockpiles have risen 56 percent this year, peaking at a five-year high of 548,400 tons on Feb. 25. Manufacturing in the U.S. and Europe, the second and third- largest copper users, hasn’t recovered, Steffensen said in London. That will mean excess stockpiles that may limit the impact of Chinese buying, he said.

“You need to wait for U.S. and Europe manufacturing to pick up, and that is not going to happen this year,” Steffensen said.

The Comex division of the New York Mercantile Exchange and the Shanghai Futures Exchange also monitor metal in warehouses.

Copper for immediate delivery fell 1.9 percent yesterday to $3,358.25 a ton on the LME. For physical imports to Shanghai, buyers are paying a premium of $90 to $110 a ton on top of that, according to London-based researcher CRU. That partly reflects insurance and freight costs and compares with a premium of $80 to $90 at the end of last year.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net.