Chinese are set to export their stocks of copper to the London Metal Exchange (LME) warehouses in a move to trim their domestic supply of copper that has been stockpiled at record levels even though there is scant end use for the metal.

“Chinese trading companies and main smelters will jointly export big amounts of copper in the next two months. The copper will be seen in LME warehouses in Asia,” a trade manager at Jiangxi Copper International told Reuters.

Copper stocks at LME are said to have been depleting lately so the flow back of Chinese copper is seen by some as a way to avert tight supply.

LME registered warehouses say that their copper inventories fell to lowest level since November 2008 on Friday to just over 250,000 tones.

“It certainly shows there’s a lot of material around in China and potentially there’s not a lot of material elsewhere, so they need to move to other parts of the world. Any material coming back into LME eventually has to overwhelm the perceived tightness that’s coming out of Europe and the United States,” said a Singapore based metals trader.

The International Copper Study Group (ICSG) said on Monday that the demand for refined copper will be higher then supply by 240,000 tons for 2012 and says that existing mines could reverse the shortage in 2013.

“Growth in mine output will mainly be from restoration of production at existing operations rather than from new projects. While some expansions and startups will occur in 2013… deferrals and delays in projects have postponed most of anticipated new supply to 2014 or later,” the ICSG said.

Analysts believe that there are 500-600,000 tons of copper trapped in Shanghai warehouse where it is used as collateral for loans.

Copper prices tanked today some 2% on EU problems, bad jobs number in US and lack of end use in China.

“The major concern is end-use demand. We have seen a surge in imports (to China) a few months ago, and that has gone almost entirely into stock in China. With the arbitrage being closed, imports are likely to be much weaker over the next few months. They will still continue to receive some of the contracted material, but the fact that they’re talking about exports is a clear indication of weakness in real demand,” said Capital Economics commodities economist Ross Strachan.

Investment bank Macquarie believes that there is a drop in Shanghai stocks and the demand for copper will rebound.

“We believe the copper stock build in China has come to an end, and refined copper inventory will decline over the next quarter as a result of improving demand from China,” Macquarie Commodities Research said.

Last week, Trafigura, world’s 3rd biggest trader, and China International Capital Corp. (CICC) both said that they expect intermediate weakness in the metal but lots of price strength in the second half of 2012.

Copper is of interest to equity traders because stocks tend to be highly correlated with the trajectory of the copper price.