Shanghai cif copper premiums were down by around $5 to $120-125 per tonne on Wednesday May 21 amid an unfavourable arbitrage and a large backwardation in the London market.
“Premiums fell this week and transactions are flat,” a physical trader told Metal Bulletin. “Warehouse cargoes were sold at a premium of around $120 while B/L cargoes were slightly higher.”
“It is obvious that long positions are squeezing the market currently; traders build up large long positions in the LME market while purchasing actively on the spot market,” another physical trader said.
“This ‘squeezing’ activity boosted both LME and spot copper price with the large 3-month to cash backwardation in LME lending support.”
The LME cash to 3M backwardation was at $48 per tonne on Wednesday May 21.
“Under these circumstances, shorts have to leave the market either by closing their positions suffering losses or buying spot cargoes at a high price,” he added.
“Though the LME copper price fell on Tuesday and prompts have passed, we don’t think the squeezing has ended. A big drop in LME open interest and backwardation will be a sign of the squeeze ending,” he said, adding, “If that happens, copper price will plummet.”
“Large imported cargoes flew to China from the LME with traders keen to sell,” another commodity trader said. “The arbitrage and backwardation, however, are making it costly to store cargoes, resulting in light transactions and falling cif premiums.”
“I think this squeezing may continue for a while and our company is also seeking opportunities to benefit from the large backwardation,” a senior futures trader at one of China’s largest copper trading company told Metal Bulletin.
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