PRICING NOTICE: Amendment of SHFE vs LME physical arbitrage calculation for copper, aluminium, zinc, nickel

Fastmarkets has amended its formula for calculating the daily physical arbitrage for imports of copper, aluminium, zinc and nickel into China in response to the country lowering its value-added tax (VAT) rate.

April 1, 2019

By Ellie Wang

On April 1, 2019, Fastmarkets adopted China’s latest announced VAT rate for the manufacturing sector of 13% in its daily physical arbitrage calculation for imports of the above metals. Previously, a VAT rate of 16% had been used as per this pricing notice.

The formula for calculating the daily arbitrage otherwise remains unchanged.

Using copper as an example, the formula consists of three parts:

a. Shanghai Futures Exchange front-month contract close + spot premium/discount = China spot market price
b. (London Metal Exchange three-month price + premium cif Shanghai) x 1.13% x forex rate + 200 yuan = cost for imported copper
c. The final import arbitrage result comes from (a minus b).

Note:
1. The copper premium cif Shanghai is Fastmarkets’ Shanghai cif daily copper premium. We also use Fastmarkets’ MB cif Shanghai premium for the aluminium arbitrage calculation, and the Fastmarkets’ Shanghai warehouse premiums for zinc and nickel arbitrage calculations.
2. Spot premium/discount = average premium/discount of SHMET, a local metals website, whose figures are widely used for spot trading in China.
3. Forex rate: using Bank of China’s currency sell price, at or around 3pm Shanghai time every day.
4. 200 yuan in part b refers to port charges including clearance costs, warehouse fees, etc.
5. We use the LME three-month copper price at 3pm Shanghai time.
6. We also include the Chinese import tax for the metals in the calculation. For copper and aluminium there is no import tax, but there a rate of 1% for zinc and 2% for nickel.

The arbitrage aims to provide a general benchmark for the market because we understand different companies and deals will have different costs, among other variables.

All historical data relating to this arbitrage is available in the pricing section of the Fastmarkets website.

To provide feedback on this arbitrage calculation, please contact Ellie Wang by email at: pricing@fastmarkets.com. Please add the subject heading FAO: Ellie Wang, re: Arbitrage calculation.

To see all Fastmarkets’ pricing methodology and specification documents go to https://www.metalbulletin.com/prices/pricing-methodology.html