The arbitrage, open since mid-December, was starting to show up in LME copper inventory data that recorded its first drop since late October, of 2,025 tonnes to 523,450 tonnes, on Monday. More outflows may be on the cards with traders reporting the potential cancellation of up to 40,000 tonnes of metal in Busan, South Korea.
"There is strong expectation that China will buy a lot of copper from the international market in the beginning of the year, especially when the price differentials are favourable to imports," said Liu Xu, an analyst at China International Futures. "We are very optimistic on January's copper imports."
China's imports of unwrought copper and semi-finished copper products jumped 27 percent from a month earlier to 369,368 tonnes in December. Scrap copper imports soared 46 percent on the month, the official customs data showed. China is due to release detailed trade data, together with key economic indicators including industrial output, on Thursday.
The US dollar drifted lower on Tuesday as equity markets stabilised and worries over Greece's fiscal woes eased just a little, favouring riskier trades in commodities and related currencies. Shanghai's benchmark third-month copper futures contract hit a one-week high of 61,680 yuan a tonne, before ending at 61,630 yuan, up 1.2 percent.
Three-month LME copper also touched a one-week high of $7,595 a tonne, before edging lower to $7,590 a tonne by 0700 GMT. "The correction is over for the short term, now the market is back in hands of bulls," said Li Rong, an analyst at Great Wall Futures. "We are likely to see new highs - I don't see any factors that could knock down prices in the short term."
But Li also said real demand might continue to lag behind the fast rally in prices, especially when much of the commercial and manufacturing activity is expected to shut down around the Lunar New Year holiday in February. Investors have sharply increased their net speculative long positions in the copper market over the last week when prices dipped after a sharp rally that started in late December, Credit Suisse said in a research report.
LME zinc gained $50.75 to $2,530.75 a tonne, and Shanghai zinc hit a one-week high at 20,970 yuan a tonne before easing to end at 20,950 yuan a tonne, up nearly 2 percent. "Buyers are returning to the zinc market, after zinc prices pulled back sharply last week," said Liu of China International Futures. Zinc is the only metal in the negative territory, with LME and Shanghai zinc both down 1.1 percent so far this year.