China's copper imports fell 60 percent in the first five months of this year as high copper prices and rising domestic supply reduced its need to ship in metal.
Net imports of copper, used in wiring, plumbing and cell phones, could drop further in June, July and possibly even August as international prices stay well above domestic prices. "Imports could be lower in June, probably not over 40,000 tonnes," a Chinese importer said.
In May, China imported a net 29,985 tonnes of copper. Net imports for the first five months of the year dropped 61 percent to 209,127 tonnes, according to Reuters calculations based on Customs data.
Even accounting for a 24 percent rise in domestic refined copper output in the first five months, China's apparent demand for copper has fallen by 3.4 percent this year, a recent Macquarie Research report said.
"Chinese imports are lower than one would have expected, particularly as semis production is so strong," Macquarie analyst Adam Rowley said.
"This can be taken in two ways. Either Chinese demand is a lot lower than people expect or there has been heavy destocking, which is our view," he added.
Chinese copper prices remained 8,000 yuan to 9,000 yuan ($1,000-$1,125) lower than the cost of imports for much of June, compared with a gap of about 3,000 yuan in May. That means that few cargoes are likely to have been booked for July or early August arrival.
The State Reserves Bureau (SRB), a government agency responsible for strategic stocks, remains the swing factor that helped push May's net imports to the lowest level since December.
The SRB helped spur massive speculation in London copper futures after its loss making short position became public last year.
That in turn helped raise Shanghai copper futures but the two markets have diverged in recent months as high prices caused Chinese spot demand to dry up.
The SRB could sell as much as 100,000 tonnes of copper on domestic markets, including recent sales of 37,400 tonnes, helping to keep domestic prices well below the level at which imports are profitable.
The wide price gap has helped reduce imports by fabricators which then enjoy tax advantages for re-exporting the copper products. Beijing is considering abolishing some of those tax rebates, although copper smelters and fabricators - already facing tight margins - have lobbied hard against any change.
Net aluminium exports in the first five months of the year were down 46 percent compared with the same period a year ago, at 223,616 tonnes.
Beijing stopped issuing tolling permits in August last year but it has allowed existing permits to run their course. Without permits, smelters pay an 8 percent tax on alumina imports and a 5 percent tax on aluminium exports.
Traders said some smelters had exported primary metal but reported it as aluminium products, to avoid the 5 percent export tax and to claim a 13 percent tax rebate on products exports.
Aluminium products exports have risen to a net 134,106 tonnes in the first five months of this year, compared with net imports of 14,100 tonnes in the same period last year.
The industry is lobbying against any reduction in export rebates, which Beijing has proposed to try and curb what it sees as a low value-added, polluting industry that uses up China's scarce natural resources.