CORRECTED-Shanghai copper set to surge on dwindling stocks, traders say

SHANGHAI, April 30 (Reuters) - Copper inventories on the Shanghai Futures Exchange (ShFE) are expected to decline again this week, continuing the sharp drop and potentially triggering a price surge, according to four traders.

The surge in the prices of ShFE copper, a key metal for China's vast manufacturing sector, will attract more metal to the exchange warehouses, making a complete stock depletion unlikely, traders said.

Already, the tightness is showing in the Yangshan copper premium SMM-CUYP-CN, a gauge of China's appetite for importing copper. It stood at $93 a ton on Monday, the highest since December 2023 and up more than 40% since January 2.

Copper inventories on the ShFE CU-STX-SGH dropped 32% to 116,753 tons last week, the steepest percentage decline on record, as local buyers took delivery of metal purchased during a price slump earlier this month.

One of the traders said ShFE copper stocks could fall another 10,000 tons when warehouse stocks are released on Wednesday, two days earlier than usual because of public holidays in China from May 1 to May 5.

Traders diverted copper to the U.S. amid a threat of tariffs on U.S. imports, leading to a slide in ShFE stocks and driving up prices on COMEX.

This fuelled a surge in COMEX stocks to 137,759 tons metric tons HG-STX-COMEX on Tuesday, up 45% since January 2 and at their highest since December 2018.

The tariff threat on U.S. imports boosted prices on the COMEX, while the anticipation of higher prices attracted shipments to the U.S., elevating COMEX inventory.

Consumers in China are struggling to secure supplies in an already tight Chinese market partly due to the U.S.-China trade tensions, which have reduced a major source of scrap metal from the United States.

Typically, copper prices on the ShFE SCFc1 are higher than on COMEX HGc1 due to differences in supply and demand in China and the U.S. and other factors like freight and taxes.

But for much of the time since mid-March, COMEX copper prices have been higher due to the buying frenzy in anticipation of import tariffs.

Traders expect the price relationship to revert to normal as the need to replenish Chinese inventories takes precedence.

One trader said the prospect of higher prices on ShFE could also draw metal stored in Shanghai's bonded warehouses SMM-CUR-BON.

Stocks sat at 75,500 tons on April 24, down 5% week-on-week but nearly five times January 16's low of 15,200 tons.