Backwardation Spread Stays High, Shanghai Spot Copper May Be at a Deep Discount Next Monday [SMM Shanghai Spot Copper]

SMM, August 14:

In early trading, the SHFE copper 2608 contract opened lower with a gap and then consolidated sideways, with its overall center edging slightly lower. The opening price was 108,550 yuan/mt. After the open, prices showed a weak downward trend, hitting an intraday low of 108,060 yuan/mt before recovering somewhat to close at 108,250 yuan/mt. The inter-month backwardation spread was at 590–700 yuan/mt, and the front-month import profit margin for SHFE copper against the 2608 contract ranged from a loss of 1,910 yuan/mt to a loss of 1,800 yuan/mt.

Intraday, sales sentiment for copper cathode in Shanghai was 2.56, down 0.83 MoM, while purchasing sentiment was 2.99, up 0.08 MoM. Historical data can be queried from the database. Intraday, suppliers made few offers against the 2608 contract and largely shifted to quoting against the 2609 contract. For high-quality copper, only some Jintun large plates were available, quoted at a discount of 50 yuan/mt against the front-month contract. Standard-quality copper brands such as Lufang, Xiangguang and JCC were quoted at a premium of around 400 yuan/mt against the 2609 contract; brands such as Jinguan, Jinxin and Tongguan were quoted at premiums of 380–450 yuan/mt against the 2609 contract. After a small amount of Jinchuan ISA copper quoted at a discount of 280 yuan/mt against the front-month contract changed hands, low-priced supply became hard to find. Non-registered copper traded relatively well, with offers at a discount of 350 yuan/mt against the front-month contract, and most transactions were done at a discount of 450 yuan/mt.

Looking ahead to next week, next Monday will be the last trading day for the SHFE copper 2608 contract. The backwardation spread between the 2608 and 2609 contracts remains elevated at 590–700 yuan/mt. Under SMM methodology, SMM always quotes against the front-month contract; quotes against the 2608 contract on Monday are expected to remain at relatively deep discounts. As the pricing basis switches to the 2609 contract on Tuesday, spot premiums will show a notable apparent recovery. On the delivery side, as of the morning close, open interest in the SHFE copper 2608 contract was still around 9,480 lots; as of August 13, SHFE registered copper warrants stood at 27,200 mt, and some suppliers continued to register deliverable material as warrants, so supply will remain partly diverted between the spot and warrant segments. On the demand side, operations at some downstream enterprises have recovered somewhat. End-user clients mostly priced against the 2609 contract, and their acceptable copper price center has shifted upward from earlier; orders were mostly concentrated around 107,000 yuan/mt. However, this level is still some distance from current futures prices, and actual demand release is expected to remain dominated by rigid demand. Overall, Shanghai spot copper quotes against the 2608 contract are expected to remain at deep discounts next Monday, and after the contract rollover, quotes against the 2609 contract will rebound noticeably. Going forward, attention should still be paid to downstream transactions and the flow of deliverable material.