Tight Supply Continues to Boost Premiums Higher Again, but Unfavorable SHFE/LME Price Ratio Weakens Upward Momentum [SMM Yangshan Copper Weekly Review]

Over the week of July 20-23, the weekly average price range for Yangshan copper premium B/L transactions stood at $104-111/mt, QP August, averaging $108/mt; warrant transactions averaged $105-115/mt, QP August, averaging $110/mt; and EQ copper CIF B/L was at $69-78/mt, QP August, averaging $73/mt. As of July 23, the SHFE/LME copper price ratio for the SHFE 2608 contract after excluding exchange rate was 1.1334, with an import loss of around 635.6 yuan/mt, widening by about 261 yuan/mt from the same period last week. As of Thursday, the LME copper August date shifted to a backwardation structure, with a carry spread of -$4.14/mt between the August and September dates. Currently, mainstream offers for pyrometallurgy-registered copper B/L are around $110-120/mt, while CIF B/L EQ copper mainstream offers are around $75-90/mt.

Yangshan copper premiums showed a retreat-after-rapid-rise trend this week. At the start of the week, the market continued to price in the shortage of available supply. As the COMEX-LME price spread widened again, the North American siphoning effect strengthened, COMEX-registered brands were scarce, China's social inventory fell to a low level, and LME nearby contracts shifted to backwardation, sellers' offers kept surging. However, due to persistently unfavorable price ratios, offers pulled back towards the end of the week. Overall, the market grappled with tight supply and sluggish demand, resulting in low physical trading activity amid weak supply-demand conditions.

According to SMM, as of Thursday, July 23, China's bonded zone copper inventory fell by 1,700 mt WoW from July 16 to 37,200 mt. Specifically, Shanghai bonded inventory fell by 1,500 mt WoW to 33,300 mt, while Guangdong bonded inventory fell by 200 mt WoW to 3,900 mt. The bonded zone inventory shifted from destocking to inventory buildup, mainly because some suppliers were optimistic about future premiums and price ratios, showing low willingness to sell, which reduced bonded zone warehouse withdrawals.

Looking ahead, with US tariffs still pending and the siphoning effect persisting, the market is still trading the tight supply narrative. However, it is worth noting that LME cancelled warrants have increased continuously recently, with the ratio rising above 60%, mainly from US and Asian warehouses. According to SMM, some supply is being shipped to China and will arrive in a first round of concentrated arrivals in late July. Attention should be paid to this supply replenishment, which, combined with persistently inverted price ratios and softening downstream demand, could push the premium center to pull back.