Record-high copper prices freeze Chinese spot trading

Global copper futures prices are in a frenzy, with record highs being logged on the New York-based Commodity Exchange (Comex), London Metal Exchange and Shanghai Futures Exchange (SHFE) in recent days

But buying in China’s copper spot market has ground to a halt due to an absence of demand at these elevated price levels, sources have told Fastmarkets.

On Monday, Comex copper prices reached an all-time high of $5.20 per lb, or $11,464 per tonne, before closing at $5.11 per lb. The LME three-month copper price surged to an all-time high of $10,954 per tonne the same day, before closing at $10,889 per tonne. On the SHFE, the most-traded July copper contract hit a record high of 88,930 yuan ($10,875, excluding 13% value-added tax) per tonne, before finishing the day at 87,670 per tonne.

In China, the world’s largest consumer of copper, there has been largely a negative reaction from the buy side, with domestic copper fabricators suffering from a lack of new orders, sources said.

“A healthy, sustainable price rise should be demand-driven. Now copper [futures] prices have disconnected from real demand… this is hurting a lot [of people, from copper fabricators] to end users,” a copper fabricator source said.

“Spot buying is frozen now, with the majority [of buyers] out of the market. [Copper fabricators] will produce based on orders and will cut production if [there is] no demand,” a trader said.

Record-low Shanghai grade A copper cathode premiums

This lack of buying is reflected in record-low Shanghai grade A copper cathode premiums, which can be used as a barometer for Chinese demand for imported copper.

Fastmarkets assessed the daily benchmark copper grade A cathode premium, cif Shanghai, at a discount of $5-20 per tonne on Monday May 20, widening from a discount of $0-15 per tonne on May 17.

This marks a fresh all-time low, according to Fastmarkets’ data that dates back to 2015.

At the same time, a continued build-up of copper stocks at SHFE-registered warehouses is another indicator of the slow demand in China’s domestic market.

SHFE copper stocks were at a four-year high of 291,020 tonnes in the week to May 17, according to the exchange’s weekly stock report.

The lackluster demand in China and the opening of the arbitrage window for exports have incentivized Chinese copper smelters to ship their units abroad, mainly to LME-registered warehouses in Asia. But these units are arriving at a slow pace, according to market participants.

“There have been some inflows of Chinese units since last week, but [the arrivals have been slow] due partially to ship delays and long queues. More inflows are expected in June,” a second copper trader said.

LME copper stocks totaled 105,900 tonnes on May 20, up by 2,250 tonnes from May 17, with the new tonnages mainly entering Asian warehouses.

Industry at risk

Since the start of the year, Chinese smelters have been facing a challenging environment whereby they are paying more for copper concentrate and selling refined copper at discounts – with these discounts still persisting. Now the risks for copper fabricators are also growing, participants said.

“I’m ‘busy’ in paying additional margins following the continuing surge of copper prices, and cash liquidity is getting tighter [which is] a real big problem for copper fabricators, small ones in particular… [Small fabricators] have already stopped purchasing [in the spot market] because they are running out of cash,” a second copper fabricator source told Fastmarkets.

“The copper industry is now being spoiled by the speculative frenzy [on the exchanges], which is totally ignoring market fundamentals. There is no strong demand, and no supply shortages [in the spot the market], but the deficit outlook which is driving bullish bets on exchanges is killing real participants in the industry, very ironically,” a third copper fabricator source said.

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