China's refined copper consumption is forecast to rise by about 5 percent in the second half of 2012 from a year ago, a state-backed research firm said, led by higher demand from power cable makers as the government takes steps to boost the economy.
Stronger demand in the world's top copper consumer should trim stocks held in bonded warehouses in Shanghai, which are estimated to stand near one-year highs, and prompt importers to step up purchases of spot copper in the fourth quarter.
Chinese demand is a key driver for London Metal Exchange copper prices, with the benchmark three-month contract up a marginal 0.75 percent so far this year.
Chinese state-backed research firm Antaike expects consumption of refined copper to be 3.95 million tonnes in the second half, up from 3.75 million tonnes in the first half and taking 2012 consumption to 7.7 million tonnes, up 5 percent from last year.
"Consumption from the power sector would improve as early as in September," Antaike's senior analyst Yang Changhua said, noting the power sector is estimated to account for near half of China's real consumption of refined copper.
In a research report this week, Goldman Sachs also predicted 5 percent growth in China's copper demand for 2012.
China produced 18.064 million km of power cables in the first half, up 13.7 percent from a year ago, official data showed.
But the pace was slower than the 41.8 percent rise in the first half of 2011, as tighter Chinese monetary policy restricted investments.
Beijing has stepped up policies to boost domestic demand as economic growth slowed to its slowest pace in three years in the second quarter and has forecast growth will accelerate in the second half as policies rolled out to boost economic activity gain traction.
Large power cables manufacturers expect to get big orders from state power operators in late August or September, said a sales manager at a large copper smelter, who recently visited manufacturers.
Domestic demand for copper has been lower than many importers had expected this year due to cooling economic growth.
Traders noted, however, that importers had not defaulted on term shipments so far because they were storing delivered copper in bonded warehouses and using it as collateral for loans.
The loans were mostly in U.S. dollars and provided by foreign banks for six months to one year, they said.
Chinese merchants and investors had used bonded copper as collateral for over a year and more used such financing for term shipments in the first half to avoid defaults, traders said.
"Two to three foreign banks dominated the stocks financing in the previous year. Now seven to eight foreign banks are in the market," a trader at an international trading house said.
But Chinese firms importing copper specifically as a financing tool have reduced purchases and cut demand for the loans after rates in the domestic market fell last month, trader said.
Foreign banks are offering rates of about 1.5-2.5 percent above Libor, down from about 3 percent last year and 4 percent in 2010, traders said.
Bonded copper stocks, arriving in Shanghai and not yet assessed for China's 17 percent value-added tax, were estimated at about 620,000 tonnes this week, near a one-year high in May.
Stocks had fallen to 500,000-580,000 tonnes last month after end-users increased purchases on low prices.