China's demand for imported copper scrap has fallen in recent weeks as a result of lower domestic prices and Beijing's attempts to curb runaway economic growth, scrap traders said on Friday.
But they said imports of No 2 copper scrap might recover as the price gap between overseas and domestic shipments narrows. Imports of low-grade scrap copper wire, cables and motors were also set to rise after the government this month approved permits for more than 400 Chinese processors.
"People don't think it's a good time to buy a lot of copper right now, because the more you buy, the more you may lose," said Feng Zhang, chief representative in China for Sims Group Ltd (Australia:SMS.AX - News), the world's largest recycling firm.
China has taken steps to cool rapid credit growth and bring economic growth closer to its official target of seven percent from 9.1 percent last year.
Around 110 billion yuan ($13.3 billion) will be sucked from China's banking sector after its central bank raises the minimum level of deposit that banks must keep in reserve by half a percentage point from April 25 -- its third hike in seven months.
Feng said Chinese demand for No 2 copper scrap had been dampened by the latest credit tightening and the power shortage that has afflicted processors since the end of last year.
"There's less money in the market, so the import price cannot go up," he said. "People are very conservative right now."
China imported 496,095 metric tons of copper scrap in January-February, down 0.7 of a percent on the same period in 2003, the latest official customs data showed.
Offers for imported No 2 copper scrap grades, such as Birch/Cliff, were around 89 percent of the London Metal Exchange (LME) three-month price, Feng said.
Benchmark three-month LME copper (MCU3) was trading at $2,831/2,836 a metric ton at 0800 GMT on Friday from around $2,300 at the beginning of the year.
Local prices for domestic spot cargoes are linked to the nearby copper contract on the Shanghai Futures Exchange (0#SCF:), currently the May contract (SCFK4), which lost 420 yuan to 26,600 yuan a metric ton on Friday, against 28,850 yuan on April 2.
Chinese buyers said copper imports had slowed in recent weeks but added supply of copper scrap in the domestic market had been tightening, as traders were reluctant to sell stocks imported in previous months.
"The supply tightness is supporting the price of copper scrap. Some traders may start looking for imports as the price gap is narrowing," a buyer said.
Traders said processors in Guangdong province would increase imports of low-grade No 7 category scraps, including wire, cable, small motors and power generators, after the State Environmental Protection Administration late last week released the list of processors that are allowed to import such grades in 2004.
Industry sources said the administration had sent investigators to processing bases in Guangdong, Zhejiang and Jiangsu provinces for checks in the second half of last year.
The list, the release of which was delayed, approved 107 scrap processors in Guangdong as importers of No 7 copper scrap.
Industry sources said more than 400 processors in China were allowed to import the scraps.
"If the companies didn't do anything wrong, they should be able to get permits for the year before April 1, when the permit for the previous year expired," a processor in Zhejiang province said, adding his company had received the permit for 2004 imports before April. Reuters