The daily arbitrage calculation between the Chinese and global metals markets is one of the most popular data read by Metal Bulletin and FastMarkets subscribers.
The calculation formula was improved on Monday March 7, 2016 in order to reflect more accurate import window for physical trading. And as of January 2, 2018, Metal Bulletin updated the formula for nickel again to reflect the doubled import tax implemented by Beijing.
Please find below for the latest explanation of the calculator.
Metal Bulletin arbitrage calculator uses prices on the Shanghai Futures Exchange and the London Metal Exchange as benchmarks. The calculation takes into account factors including Chinese import taxes, VAT, port charges, exchange rates and premiums on a Shanghai cif or an in-warehouse basis.
Take copper: the formula consists of two parts:
a. SHFE front month contract close + spot premium/discount = China spot market price
b. (LME 3M + premium cif Shanghai) x 1.17% x forex rate + 200 = price for imported copper
And the final import arbitrage result comes from (a minus b).
1. The copper premium cif Shanghai is the MB Shanghai cif daily copper premium. We also use the MB cif Shanghai premium for the aluminium arbitrage calculation, and the MB Shanghai warehouse premiums for zinc and nickel arbitrage calculations.
2. spot premium/discount = average premium/discount of SHMET, a local metal website, whose figures are widely used for spot trading in China.
3. forex rate: using currency sell price of Bank of China, at or around 15:00 every day.
4. 200 (yuan) in part b refers to port charges including clearance costs, warehouse fees, etc.
5. We use LME 3M copper at 15:00 Beijing time.
6. We also include Chinese import tax for the metals in the calculation. For copper and aluminium, there is no import tax, and 2% for nickel, 1% for zinc.
Please contact us on firstname.lastname@example.org if you have any queries regarding the arbitrage.