Shanghai copper premiums soar to record high; African supply sparks concern

Premiums for copper cathode imported into China surged during the week to Friday October 14, following the country’s National Day holidays, reaching its highest recorded level since Fastmarkets started tracking the market in 2015

Fastmarkets assessed the daily benchmark copper grade A cathode premium, cif Shanghai at $105-135 per tonne on Friday, up by 37.1% from $75-100 per tonne one week prior.

Improved import profits, which drove up premiums, and a lack of prompt cargoes, buoyed market sentiment, Fastmarkets heard.

“This is a crazy week and spot business concluded higher and higher over the week. If you have cargoes with prompt arrival, you can sell them at very high premiums,” a Shanghai-based trader said.

“The rise is very impressive and decent arbitrage gains encouraged a market rush for the soon-to-arrive cathode. But there are not many prompt cargoes out there after pre-holiday sales, and prices for material arriving in November are also floating higher,” a second trader in Shanghai said.

Many market participants were optimistic about the profitable arbitrage window remaining in place, pointing to a stronger Shanghai Futures Exchange copper price and elevated spot premiums in China’s domestic copper market, which will continue to incentivize import activity.

“The SHFE copper price is poised to be stronger amid China’s low spot inventories and there will be some copper output growth [in China] during the last two months of this year. But demand is also showing some improvement and this will keep the SHFE copper price and China’s spot premiums both elevated,” Ming Gong, a copper analyst at Jinrui Futures, said.

SHFE 2210 copper closed at 65,640 yuan ($8,074) per tonne on Friday, up by 2.74% from a day earlier, and up by 5.09% from September 30, the last trading day before China’s week-long holiday in early October.

The price gap between SHFE 2210 and 2211 copper widened to 1,910 yuan tonne on Friday, before the expiration date of SHFE 2210 copper on October 17.

Ming added that China’s tight copper supplies will keep the SHFE copper forward curve in backwardation, while the domestic copper spot market will shift from discount to premium as well.

All of these will support SHFE copper prices, while London Metal Exchange copper is relatively weaker against the backdrop of a stronger United States dollar, leaving the import arbitrage window profitable between London and Shanghai.

Copper stocks registered at SHFE warehouses totaled 63,746 tonnes during the week to October 14, the highest level since mid-July. Meanwhile, Shanghai copper bonded stocks fell to 36,000-50,000 tonnes on October 10, its lowest since Fastmarkets started tracking the market in October 2014.

Fastmarkets calculated the Shanghai copper import arbitrage at a profit of $267.92 per tonne on Friday, compared with $192.38 per tonne on September 30.

Ming expects China’s copper output to be 930,000 tonnes in October, 924,000 tonnes in November, and 960,000 tonnes in December.

The country produced 917,000 tonnes of copper in August, compared with 870,000 tonnes in July, which was also up 3.9% year on year, according to China’s National Bureau of Statistics.

Worry on African copper supplies

The favorable import conditions have stimulated buyers to actively look for copper cathode to make profit. But delayed copper shipments from Africa due to strikes at Durban port is causing concern.

“I heard no progress in ending the strikes there and my copper shipments that were originally due to depart the port in late September have been delayed - still waiting for further notice,” a third trader in Shanghai said.

The same trader also pointed out that the delay may further tighten spot availability when the market is already very short of prompt cargoes.

“How long the delay will last remains unknown. But it is becoming another driving factor now in an already-tight market,” he added.

China imported 332,169 tonnes of refined copper in August, up by 10.6% month and month, and up by 31.9% year on year, according to China customs data.

Imports from the Democratic Republic of the Congo, the top copper-producing country in Africa, totaled 45,372 tonnes in August, accounting for 13.7% of China’s total imports over the month.

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