Traders have been raising their bets on an even steeper decline in copper prices in the coming months, worried that Chinese demand is dwindling just as investment made when markets were booming unleashes a new wave of supply.

Purchases of LME copper put options have been climbing since early November, but ramped up this month. They give buyers the right to sell copper at a preagreed price - in this case $4,000 or below - and are typically seen as a bet on falling prices.

London Metal Exchange copper has already dropped 6 percent this year to stand at around $4,440 a ton on Friday, hit by wavering appetite as the economy slows in top metals user China.

"Copper demand is (poor), supply is still plentiful and we are nowhere into the cost curve," said a trader in Singapore, when asked why interest in put options had increased.

In the near term, open interest in February put options for a $3,800-strike soared to 4,500 lots on Jan. 6 from 500 the day before, while at a $4,000-strike, open interest last week jumped to 1,042 lots from 317 <0#MCUG6+>.

For March contracts, open interest in $3,800 puts has surged to 1,200 lots from 450 on Jan. 8, while for $4,000 it has remained at elevated levels since December <0#MCUH6+>. For $4,200 it jumped to 1052 mid-month from 42 in mid-December.

Key demand indicators for the metal used in power and construction weakened for December, with China's industrial output, fixed asset-investment and energy generation all faltering.Meanwhile, China's state grid, its largest copper buyer, said this week that it had cut its 2016 investment budget.

Chinese appetite for the metal is also expected to dwindle around the Lunar New Year in early February.

Fresh bearish bets have been placed as far out as June. For a $3,800-strike, open interest on June options surged to 1,970 lots last week from 700 on Jan. 11.

When prices fall through strike levels, declines often accelerate sharply.

RAY OF HOPE?

There are some signs of a brightening in physical demand, with Chinese premiums edging to two-month highs as factories stock up ahead of the Lunar New Year break. China's house prices are also stabilizing and inventories are falling, offering some hope for a demand revival later in the year.

But even a modest pick up in demand may well be eclipsed by a wall of supply after record prices half a decade ago sparked a rush of investment. China-backed miner MMG Ltd this month shipped its first copper concentrate from its Las Bambas mine in Peru to China.

Annual global copper mine production capacity is expected to grow by around 5 percent a year and reach 27 million tonnes by 2019, the International Copper Study Group said this month.