Copper imports by China rose for the first time in three months in June as buying from overseas became profitable and supply tightened after consumers drained local stockpiles in the world's largest consumer.

Increased demand may lift prices, which gained to an almost three-month high in London on July 8 amid supply disruptions in Chile and Indonesia. Stockpiles in Shanghai have fallen by half since reaching the highest level this year in March. China's copper purchases accelerated in the past three to four weeks and the market "remains relatively tight" Diego Hernandez, chief executive officer of Codelco, said July 7.

"Starting from late-May, we've seen positive arbitrage for most of the time," said Wang Mingyi, an analyst at Galaxy Futures Co. "As transportation takes one to two months, arrivals in July should be even higher."

Arbitrage traders seek to profit from price differences between bourses by purchasing the metal in London and selling in Shanghai. Total imports of unwrought copper and copper products in the first half of this year fell 24 percent from a year earlier to 1.7 million tons, according to customs.

Inventories Plummet

Stockpiles monitored by the Shanghai Futures Exchange have fallen to 89,498 tons from this year's high of 177,365 tons, according to bourse data. Copper in bonded warehouses has dropped to 350,000 tons to 400,000 tons from a record 600,000 tons at the end of March, according to Shenzhen Rongtuo Trading Co. The warehouses located in Shanghai's free-trade zones are used to store arrivals that haven't cleared customs.

Codelco, the world's largest copper producer, sees "strong signs" that Chinese buyers are resuming purchases after running down stockpiles, Hernandez said. Hedge-fund managers and other large speculators increased their net-long position in New York copper futures in the week ended July 5, according to U.S. Commodity Futures Trading Commission data.

Copper for delivery in three months on the London Metal Exchange last week climbed to $9,789.75 a ton, the highest level since April 12, on reports of adverse weather in Chile's copper- producing northern region and a strike at the Grasberg mine in Indonesia. The metal dropped 0.4 percent to $9,627.50 by 4:38 p.m. in Shanghai.

Copper on the Shanghai Futures Exchange, which includes 17 percent value-added tax, closed 0.6 percent lower at 71,470 yuan ($11,051) a ton.

More Imports

Scrap imports in June totaled 420,000 tons, up from 400,000 tons in May, and 350,000 tons in June 2010, customs data show. Total arrivals in the first half of this year gained 8.2 percent from a year ago to 2.2 million tons, according to customs.

"Both the scrap and refined metal are needed in the second half to meet demand after domestic stockpiles were depleted," said Ren Gang, head of research department at Maike Futures Co.

Copper recyclers in southern China were forced to cut output of refined metal on tight scrap supply, said Tao Yonghe, general manager of Guangdong Qingyuan Yunnan Copper Nonferrous Metals Co., which produces refined copper from the scrap. Scrap imports are too expensive so traders are reluctant to buy, Tao said in an interview on June 21.

China also imported 64,491 tons of unwrought aluminum and products in June, compared with 74,880 tons in May and 74,582 tons in June 2010, according to customs. Exports of unwrought aluminum last month were 59,166 tons.

Related Links: 

China June Copper Imports Up 9.9 Pct to 280,000 Tonnes

Copper Users in China Plunder Stockpiles as Goldman Forecasts Record Rally (June 15,11)

Goldman Turning 'More Bullish' on Copper, Zinc (July 08)