LONDON (Commodity Online): Deutsche Bank expects that, despite high copper stocks, net copper imports into China will likely remain elevated in the first half of 2013, with some re-stocking taking place at the consumer level.

“This may result in copper prices approaching USD9,000/t in Q2 in our view.” Deutsche Bank said in a report.

Meanwhile, in 2013 Deutsche Bank economists expect Chinese growth to accelerate to the end of the year, averaging 8.2% after 7.7% in 2012. Despite the improvement in economic activity they believe that credit conditions are unlikely to change meaningfully in China over the near-term; which means that the financial incentive may remain in place and, all things being equal, bonded stocks will continue to build.

Chinese bonded warehouse stocks are estimated to have risen about 500kt over the year. After adjusting for inventory, real Chinese copper demand was probably higher by only about 300kt or so.

Copper premiums in China have risen modestly over the past two months or so, but remain far below levels experienced in late 2011, which according to their China stock model was the last time they saw a re-stocking cycle.

“We do expect apparent consumption to catch up with our estimate of real demand (Industrial Production is our proxy) over the course of the next quarter. Therefore some re-stocking could take place (ex-bonded warehouses). This would be expected to push premiums higher. However we are unconvinced that premiums will reach levels necessary to incentivise a liquidation of finance-related stocks (although certainly there is a risk).” Bank said.

They also believe that there is a good chance that Shanghai copper (SHFE) outperforms that of the LME such that a positive arbitrage may appear – albeit briefly. This could result in greater-than-expected imports of cathode within the next three to four months. (The LME/SHFE arbitrage has narrowed over the past couple of quarters.)

Longer-term however Deutsche Bank thinks that the import bias into China will increasingly favour concentrate.

“Certainly there has been a notable increase recently. The rise in concentrate availability this year, combined with strong Chinese smelter demand (partly due more attractive taxation) suggests that the likely trend is a continued increase in concentrate imports coincident with an increase in domestic cathode production.” Bank observed.

Therefore while the movement of net trade in cathode will be important in indicating to the market how tight (or not) demand conditions are within the country, it is the net trade that will increasingly be relevant in reflecting the overall China copper demand dynamic. Net trade as calculated by examining cathode, scrap and concentrate imports less exports in these same categories.

“In our supply/demand model we forecast Chinese apparent copper consumption growth of only 2% this year.” the bank noted.

“This reflects our base-case view that over the course of 2013, a stock rebalancing will occur. However, as we have discussed, there is a risk that this could be pushed out or delayed. On this basis we believe that there is some upside risk to our apparent demand estimate.” it concluded.