While some smelters may have prepared the necessary paperwork in advance, the rules put a bureaucratic bottleneck on China’s export potential.
On the other hand, metal in bonded warehouses – which analysts and traders estimate at about 600,000 tonnes, compared with just 240,000 tonnes in the LME’s global network of warehouses – is more accessible.
In theory, it could be exported to the LME immediately, with the only restriction being the shipping time.
How much copper will the world’s largest copper importer export? That counterintuitive question is critical to the outlook for the metal.
It might seem a simple equation. Inventories in China, the world’s biggest copper consumer and importer, are at record levels, and prices on the London Metal Exchange are being pushed higher by a sharp drawdown in exchange stocks. The obvious conclusion is that China should export some of its surplus inventory.
Indeed, Jiangxi Copper, the country’s largest producer of copper, has announced a plan to make “large” exports “in the next few weeks”.
But little about China’s commodities trade is simple, and it is far from clear whether the exports will be large enough to affect the global market significantly.
There are two types of copper inventory in China: metal that has been imported officially, and metal that sits in so-called “bonded warehouses” in trading centres such as Shanghai, before import duties have been paid.
Exporting the first type of metal is not straightforward.
Exports of copper from China attract an export tax, reducing the appeal of the trade. The only way to avoid the tax is to be registered as a “toll” smelter, with permission to import copper raw materials and export the finished metal tax free.
But if it is so easy, why has it not already happened?
The market is providing traders who hold metal in Chinese bonded warehouses with a powerful incentive to export. The traders are typically short LME futures as a hedge for their physical metal. With the LME market in a steep “backwardation” – with copper for delivery in two days trading $155 a tonne higher than copper for delivery in three months – rolling those hedges is expensive.
But, in the past month just 20,000 tonnes of copper have been delivered into the LME’s warehouses in Asia.
Moreover, metal in Chinese bonded warehouses is trading at a premium of about $50 to the LME, according to traders. While that is down from as much as $150 a few months ago, it is still surprisingly high given the soft demand in China.
 

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