Source: Reuters

Copper inventories in London Metal Exchange (LME) warehouses have dropped to a 13-month low. More declines are seen likely as a pick-up in U.S. demand and concerns about a market deficit outweigh a slowdown in buying from top consumer China. Copper is already a major commodity in Mongolia that is due to expand in 2013 once Oyu Tolgoi LLC begins operations.

LME inventories of the metal used in power and construction fell this week by a further 1,150 tons to 353,425 tons, their lowest level since mid-December 2010, which represents movements a day in arrears. Canceled warrants, or metal earmarked for delivery, account for nearly 20 percent of stocks. Inventories are due to fall in coming weeks below 300,000 tons to the lowest levels since 2009.

A 25 percent drop in LME copper prices in the fourth quarter, which touched a low of USD 6,635 a ton in October, triggered restocking in China, which accounts for about 40 percent of global copper consumption. But Chinese buying is now likely to take a back seat as prices have recovered to about USD 8,150 per ton, business slows ahead of the Lunar New Year and the London-Shanghai arbitrage is no longer favorable.

Balancing the expected slowdown in copper buying from China are some emerging bright spots for demand, with recent U.S. data from the labor market to manufacturing showing signs of a pick-up in economic activity.

An anticipated market deficit this year may also be pushing copper stocks down. The global market for refined copper is seen in a 250,000 ton production deficit in 2012, before easing to become nearly balanced in 2013.