SINGAPORE: Copper futures in London will rise to $8,000 a ton on increased demand from China and a recovery in usage outside the nation, according to Macquarie Group Ltd.
"Strong demand from China" is depleting the country's stockpiles in bonded warehouses, which hold supplies before duty has been paid, the bank's analysts wrote in a report. The gain, forecast over what Macquarie called the "short term", would mean an advance of about 8.9 percent from today's levels.
The metal used in pipes and wires has more than doubled over the past year, the best performance on the London Metal Exchange, amid investors' optimism that demand will rebound as the global economy moves out of recession. The contract last traded at more than $8,000 in August 2008.
"Bonded warehouses in China are fast running down refined copper stock levels, meaning Chinese purchases will need to turn to Asian LME warehouse stocks," analysts said. "High import levels are expected."
Copper stockpiles earmarked for withdrawal from LME warehouses, known as canceled warrants, were at 16,000 tons on Feb 19, up more than fivefold from the start of the year, exchange data show. The LME-monitored warehouses in Asia are located outside China.
"The rise in canceled warrants has occurred primarily in South Korea and Rotterdam, driven by strong Chinese imports owing to a positive arbitrage, and a pickup in European demand respectively," the report said. Canceled warrants in South Korea and Singapore are expected to increase further next month, it said.
Futures in London are trading at a premium to those in Shanghai after rising 9.1 percent last week, when markets in China were closed for the Lunar New Year holiday. The May-delivery contract on the Shanghai Futures Exchange gained as much as 6.4 percent to 60,000 yuan ($8,787) a ton yesterday. It closed at 59,010 yuan.
The "still-positive import arbitrage" indicated Chinese demand, the report said. Arbitrage refers to trading to exploit price differences for the same commodity in different markets.