Copper Premiums Drop in China as Asia Stockpiles Soar, CRU Says

By Chanyaporn Chanjaroen

Sept. 4 (Bloomberg) -- Surcharges added to copper prices, a signal for demand, have dropped as much as about 40 percent in China as Asian stockpiles swell in response to slower buying in the world’s largest consumer of the metal, CRU said.

The so-called copper premium has slid to between $70 and $90 a metric ton in Shanghai, according to Paul Settles, an analyst at the London-based commodities researcher. The premium, which includes freight and insurance and is paid on top of London Metal Exchange prices, was $120 in the first week of August, he said.

LME-tracked inventories in South Korea, the nearest location to China, have soared more than 26-fold to 27,075 tons from 1,025 tons at the end of June. Copper stockpiles have dropped in Europe and the U.S., drained by record first-half imports into China, where the government is spending 4 trillion yuan ($586 billion) to stimulate the local economy.

“China has got a bit of stockpile, and they will have to work that down before they come back to the market,” Settles said yesterday by phone. “It might be later in the fourth quarter or in the first quarter next year” when buyers from the country resume purchases in the physical market, he said.

Copper inventories in LME-registered European warehouses have plunged 77 percent from the year’s peak in February. In the U.S., inventories tracked by the exchange have declined 17 percent from April’s high.

European Premiums

Any drop in South Korean inventories would indicate a pickup in Chinese purchases, Leon Westgate, an analyst at Standard Bank Plc in London, said yesterday in a daily report.

In Europe, so-called spot premiums have slid to between $60 and $85 a ton in Rotterdam from this year’s peak of $90 to $110 in June, according to CRU. U.S. premiums have dropped to around 4 cents to 4.5 cents a pound over LME prices from as much as 5.5 cents in May and June, Settles said.

Copper has doubled this year on the LME after plunging in 2008 as commodities dropped in the second half. Consumption in China has expanded at a “double-digit” rate, Settles said. At the same time, usage has slid at similar paces in the U.S., European Union nations and other leading consumers, he said.

“It appears that we’ve hit the bottom, especially if macroeconomic indicators are to be believed,” said Settles. “The question is how strong the recovery will be, in both the world economy and copper demand.”

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