Dip In Lme Stocks Helping Buoy Copper, Say Traders

Physical demand traditionally picks up over the fourth quarter in line with the resumption of industrial activity following a lull over the summer months

LME copper stocks dropped for the third day yesterday and more declines could be forthcoming, traders said. The latest drop of 350 tonnes brings the week's declines to 3,925 tonnes and total LME stocks to 337,550 tonnes.

Traders said the drawdowns were helping to underpin the copper price. 3-months metal was trading around $2,120 per tonne yesterday morning.

"A large withdrawal of metal from LME on Tuesday and 4,700 tonnes of warrants cancelled gave hope to the bulls that the surplus situation has ended for the time being," brokers GNI said in a report.

Brokers Brandeis said in a report that further stock drawdowns were likely in coming months.

"Physical demand traditionally picks up over the fourth quarter in line with the resumption of industrial activity following a lull over the summer months," the report said.

Consumers and merchants were also expected to reclaim some of the metal lent to the LME during the summer slowdown and against a background of the recent wide backwardation.

Chinese imports could also still rise this year, Brandeis said. Stocks in Singapore have been falling as metal has been shipped to China, although not in remarkable volumes.

China's net imports were only 50,000 tonnes in the first half of this year compared to requirements of 100,000-150,000 tonnes.

In the first half of the year the LME cash price was significantly higher than the Shanghai Metal Exchange (SHME) cash price, which inhibited imports. "However the SHME arbitrage has narrowed steadily and should this continue then importing copper could become feasible again," Brandeis said.