LONDON, Oct 2 (Reuters) - Global exchange stocks of copper rose in September, bucking the seasonal norm of previous years and suggesting weaker consumption going into the fourth quarter.

The uptrend, however, was far from uniform with strong regional divergence evident.

Visible copper stocks have been building in both Europe and the United States but falling in Asia. That supports a hardening market consensus that copper's short-term fortunes are hostage to the dynamics of just one country -- China.

Stocks of refined copper registered with the London Metal Exchange (LME), the Shanghai Futures Exchange (SHFE) and the COMEX rose by a cumulative 27,940 tonnes during September.

At 224,180 tonnes at the end of the month, total exchange inventory was still down by 14,159 tonnes on the start of 2008 but September marked the third consecutive month of stock build. That also runs against the seasonal pattern of the copper market, which is characterised by consumer restocking and exchange stock drawdown in September as the copper products sector gears up for the fourth quarter. It is the first time that stocks have increased in September since at least 2002.

A cumulative 59,414-tonne increase in exchange stocks over the third quarter suggests a market that is moving from underlying production-consumption deficit to surplus. Not entirely surprisingly the stocks increase has been most pronounced in the United States, where demand remains weak due to the continued slump in the residential housing sector. Housing starts are still declining. The annualised rate of 895,000 starts in August represented a 33.1 percent year-on-year decline. Building permits were 36.4 percent down on the year-earlier period, meaning no imminent turnaround in the troubled sector.

COMEX stocks rose by 4,110 tonnes to 9,000 tonnes in September. It was the biggest monthly build since November 2006, albeit from a low level.

Stocks of copper registered at LME warehouses in the U.S. rose by 19,950 tonnes to 59,525 tonnes in September in what marked a sharp acceleration of an uptrend that is now in its fifth month.

Cancelled tonnage, an indicator of pending departures from the LME system, was just 200 tonnes at all U.S. locations at the end of September, indicating virtually zero demand for exchange-registered copper in the country.

LME-registered stocks at European locations increased by 11,125 tonnes to 52,525 tonnes in September. It was the third consecutive month of regional inventory build and stocks ended the month showing a year-to-date increase of 6,525 tonnes.

The trend tallies with the macro data showing the euro zone teetering on the brink of technical recession, i.e. two quarters of negative growth.

The regional manufacturing sector is contracting and physical copper premiums are on the slide. Reuters reported on Tuesday that premiums for Grade A metal in Rotterdam are currently quoted at $30-45 per tonne over LME cash, down by $10-20 from August and a lot lower than the 2008 producer premium of $115 per tonne.

BUT NOT IN ASIA
Bucking the overall uptrend in LME stocks last month were Asian locations, where registered tonnage fell by a net 5,750 tonnes. The relatively small net change masked some heavy inflow and subsequent outflow at South Korean locations over the course of the month.

The market thinking on this LME stocks event is that metal was "parked" in South Korea prior to shipment to China.

The Shanghai market remains extremely tight after SHFE stocks fell by 1,495 tonnes to 16,130 tonnes over the course oflast month. Stocks recovered slightly from a multi-year low of 13,554 tonnes in the middle of the month but the local market is still strongly backwardated and physical premiums have risen above $100 per tonne over LME cash for imported metal.

The London-Shanghai arbitrage has switched in favour of imports and it only remains to be seen just how much metal will now flow into the country. The scale of Chinese buying over the next few months will likely determine overall market sentiment and price direction, given the poor consumption outlook in most developed countries.

In this context, it is worth noting that the ratio of cancelled tonnage at LME locations in Asia slumped from a mid-September high of 18.8 percent to just 3.1 percent as of Sept. 30.

Cancelled tonnage across the system as a whole was a low 4,450 tonnes at the end of September. That was equivalent to just 2.2 percent of total registered tonnage.

That's a clear pointer that the pace of draws from the system is going to be subdued over the coming days and that the current uptrend in visible copper stocks will probably continue into a fourth consecutive month.

andy.home@thomsonreuters.com