Record all-time high copper shipments in to China during March have not been met with physical demand, instead driven by increased speculation in the country, leaving a glut of inventory, Bank of America Merrill Lynch said Monday, as April imports dipped.
China imported 450,000 mt of unwrought copper and copper products in April, up 4.7% on year, but down 21% on the month, preliminary data released Sunday by the General Administration of Customs showed.
Still, for the first four months imports stood at 1.88 million mt, up 23% on year.
Looking at market dynamics, Bank of America Merrill Lynch said, "we are not surprised that speculators have been unwilling to push prices of copper meaningfully higher. Most notably perhaps, a series of record copper imports -- March's shipments were the highest ever -- by China were not consumed and inventories built in the country."
The bank aired concerns that increased speculative investment interest was becoming "problematic."
As such it reinforced its cautious near-term outlook for the metal.
Three-months copper was spot bid on LMEselect as of 1015 GMT at $4,721/mt, from a Friday evening kerb close of $4,810/mt.
"Indeed, we expect China's copper purchases to remain subdued in the coming weeks, as the country draws on the stocks that have been built," the bank said.
The significant Chinese stockpiles are expected to keep demand curtailed for the coming weeks, Commerzbank said Monday in separate research, backing up the argument.
Recent monetary and fiscal stimulus has helped boost industry in China, resulting in speculative activity pushing the prices of commodities including copper, steel, iron ore and aluminium higher.
Commerzbank said that the month-on-month fall in imports was due above all to less attractive arbitrage opportunities between the exchanges in London and Shanghai.
"Furthermore, copper stocks in Shanghai Future Exchange warehouses had risen for a time to a record high in March, which also points to only subdued real demand and thus reduced import needs in April," the German bank added.
SHFE copper stocks stood at 311,894 mt last Friday, down 6% on week, marking a sixth consecutive weekly fall.
Despite this, SHFE copper inventory remained much higher than stocks in London Metal Exchange warehouses globally.
At last count copper in LME-registered sheds totaled 159,600 mt.
Going forward, BoA/ML had a more positive outlook for copper.
"It is hard to argue that the country's economy is stabilising cyclically, reinforcing our view that copper prices should strengthen through H2 2016," the bank's research division said.
