Copper under pressure but analysts see support from strategic buying

While the worst fallout from the Qingdao metal-backed financing scandal may have passed, mainland copper imports are slowing, with volumes shifting from small traders to larger ones as banks become more cautious.

Still, analysts said, copper prices would be supported by strategic reserve buying and demand spurred by power grid construction.

"Copper imports will likely be under pressure in the second half of the year, partly because of small traders going out of business amid tightened lending," said JP Morgan Asia-Pacific head of basic materials research Daniel Kang, adding that their volumes would be taken over by bigger rivals.

"The copper price will find good support from stockpiling by the Strategic Reserve Bureau and infrastructure demand at levels below US$7,000 a tonne ... China is structurally short of the metal."

Refined copper imports fell for a second month last month to a 13-month low amid an investigation into metals back-financing irregularities, while exports jumped 41 per cent from May, Bloomberg reported on Monday.

Copper stocks monitored by the London Metal Exchange in South Korea, the closest delivery point to Shanghai, surged by 12,000 tonnes - a sixfold jump - from June 19, and stocks at mainland bonded warehouses fell by 100,000 tonnes from June 11, it added.

Matthew Wonnacott, copper demand and markets consultant at London-based consultancy CRU, attributed lower imports to slower letter of credit issuance by mainland and foreign banks for metal imports because they were worried about the security of collateral.