Copper held at bonded warehouses in China, the biggest user, will increase as tightened credit results in more metal held locally by international traders, possibly boosting imports and prices, according to Australia and New Zealand Banking Group Ltd. “More bonded stocks will be required; material to flow into China from LME system will add to apparent demand and support prices in next 6-12 months,” ANZ Senior Metals Strategist Nicholas Trevethan said in a report today. The typical working inventories of copper in Shanghai bonded warehouses may gain to 400,000 metric tons to 500,000 tons, from about 200,000 tons to 250,000 tons in recent years, he said. Increased imports may help lift London copper prices, which have dropped 14 percent from a record $10,190 a ton in February on concern slowing global growth and spreading sovereign debt crisis may damp metals demand. Shanghai will increase storage for metals at bonded warehouses as much as fivefold next year, Eric Ni, a business development manager at Shanghai Free Trade Zones United Development Co., has said. “Costly domestic credit is driving a shift towards just in time stock management and greater reliance on international merchants by consumers,” Trevethan said. “Shanghai futures will increase in influence. Arbitrage windows will shorten.” The central bank has increased the amount of cash major lenders are required to keep in reserve nine times since September 2010, with the ratio now at a record 21.5 percent, and boosted benchmark rates on five occasions in a bid to curb inflation that hit a three-year high in July. Market Deficit Copper may remain in short supply for a third straight year in 2012 as demand led by China increases. Demand will likely exceed supply by 495,000 tons in 2011, the biggest deficit since 2004, Akira Miura, executive officer of the marketing and raw- material department at Pan Pacific Copper Co., said Sept. 1. “In a market facing deficits for the next two to three years and pressure on mine supply, a stock build of 200,000 to 300,000 tons would be highly supportive of the international market,” Trevethan said. “If nothing else, it may result in visible stocks in the LME system, currently at 465,000 tons, migrating to the opaque world of Shanghai bonded storage, and boost apparent demand from China.” Copper for three-month delivery was little changed at $8,750 a ton on the London Metal Exchange at 5:38 p.m. in Tokyo, erasing a gain of as much as 1.4 percent. The area for storing metals in Shanghai’s free trade areas will increase to 200,000 square meters to 250,000 square meters next year from 50,000 square meters, Shanghai Free Trade Zones’s Ni has said. The administration manages free-trade zones in Shanghai’s Yangshan, Waigaoqiao and Pudong Airport. Two warehouses in Yangshan started in March offering delivery services for copper and aluminum futures traded on the Shanghai Futures Exchange. Metals stored there are exempt from a 17 percent value-added tax and import tariffs, bringing prices more into line with those traded in London and New York. To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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