Shanghai cif copper premiums down in squeezed market

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.

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.

For information about the specification and methodology for the Metal Bulletin copper concentrates index, click here.

editorial@metalbulletinasia.com

What to read next
The most recent financial results published by base metals mining companies highlight just how inflation is affecting profit margins, with increasing wages, financing costs and input prices all hitting profits, sources told Fastmarkets in the week to Thursday March 28
Century Aluminum is among those selected to start award negotiations for up to $500 million in Bipartisan Infrastructure Law and Inflation Reduction Act funding to build a new aluminium smelter, the company said on Monday March 25
Participants in the copper concentrates market are struggling to comprehend an “unstoppable” decline in treatment and refinement charges (TC/RCs), with every week bringing spot deals at fresh lows and rumors each “crazier” than the last, sources have told Fastmarkets
The US Department of Energy selected five base metals projects to receive more than $900 million in federal investment from its Industrial Demonstration Program (IDP), leading to a reduction of four million tonnes of carbon dioxide emissions annually, according to a statement by the Department on Monday March 25
Aluminium producer and recycler Constellium announced on Tuesday March 12 that the company is moving to test hydrogen utilization at an industrial scale as a power source in its casthouses
Fastmarkets has corrected its MB-ALU-0002 alumina index, fob Australia and its MB-ALU-0010 alumina inferred index, fob Brazil, which were published incorrectly on Monday March 18.