China's imports of refined copper held up much better than expected in July, judging by the preliminary trade figures released on Friday.

Aggregate imports of refined metal, alloy, anode and products came in at 366,548 tonnes, up 6 percent on June. Based on the previous month's split between types of copper, that would suggest refined imports were around 265,000 tonnes.

That's a deceleration from the super-charged flow of metal into the country seen over the back end of last year and the early part of this year but still a strong monthly print in historical terms.

China's imports of refined copper dipped below 200,000 tonnes per month between February and July last year, when the country's copper consumers destocked in reaction to high international prices.

The shift in import cycle is captured in the strength of the year-on-year comparisons.

July's aggregate figure represented a 19.5-percent jump on the same month in 2011 and the cumulative import figure of 2.87 million tonnes was up by an even larger 43 percent.

Of course, no-one really thinks that actual copper consumption in China is running at anything like that pace.

The slew of macro figures out over the last 48 hours paints a picture of an industrial sector struggling with the dual headwinds of slowing export demand and domestic weakness emanating from the property sector.

Once again the copper import figure is presenting a warped view of what is happening to real consumption within China.

Import Drivers

So how to explain the relative strength of July's copper import figure?

There are probably several factors at work.

Firstly, it could be that Chinese buyers have committed to more term-contract shipments this year. There has been quite a lot of anecdotal evidence that they collectively lifted the amount of "must-have" metal booked under annual contracts with producers and the consistent high numbers seen so far this year don't do anything to undermine that view.

Secondly, there is the potential that metal is still being imported as a financing vehicle, the copper being used as collateral against grey-market loans.

The easing of credit within China over the last couple of months should have lessened demand for this sort of loan-financing but that's not to say that it has completely vanished.

Thirdly, it may be that traders are shipping metal to China in expectation that demand will start to accelerate again in the second half of this year as a variety of stimulus measures start to gain traction.

For example, an existing government subsidy on energy-saving home appliances is now to be complemented by a private-sector one. The Household Electrical Appliances Association said its members will subsidise kitchen appliances to the tune of 10 percent of the sales price.

Both measures are intended to stimulate domestic demand to compensate for lower export demand.

Copper usage by the State Grid, meanwhile, is expected to be solid in the second half of the year.

Analysts at China International Capital Corp note that "normal seasonal patterns see grid projects accelerating towards completion at year-end." Estimating that spending in the first half of the year amounted to only 37 percent of planned 2012 investment, they add that "we expect this year to be no different."

Quite probably, it's a combination of all three that is behind the continued strength of copper imports.

The bottom line is that China remains the default destination for free copper units.

Source: Reuters