Why did SHFE spot copper premiums weaken after copper prices fell? [SMM Analysis]

Copper prices continuously dropped throughout the week and only rebounded on Friday, leading to spot premiums rising initially but falling later. This article will analyze the factors that disrupted spot premium declines after copper prices fell and assess the actual consumption situation during the week.

At the beginning of the week, copper prices slightly decreased, and traders reported some delays in the arrival of imported copper. Combined with the fact that the contango price spread between the SHFE copper 2409 and 2410 contracts did not significantly narrow, spot traders maintained their firm pricing stance. By mid-week, imported copper arrived as expected, and after SHFE copper prices declined, the contango price spread between the SHFE copper 2409 and 2410 contracts narrowed significantly. By Thursday afternoon, it even turned into a backwardation structure, hitting a backwardation of 80 yuan/mt at the close. Early arbitrage players profited and actively sold spot warehouse warrants, leading to a drop in spot premiums.

It is worth noting that the proportion of SHFE copper warrants in SMM copper stocks in Shanghai quickly decreased. This indicates that after spot traders sold their warehouse warrants, there was actual downstream buying, rather than merely circulating transactions among traders. Observing SHFE stocks, copper stocks in Shanghai decreased by 18,945 mt last week, with futures stocks falling by 13,010 mt.

According to SMM survey last week (8.30-9.5), the weekly operating rate of major domestic copper cathode rod makers decreased to 78.15%, down 1.11 percentage points WoW, but exceeded the expected value by 5.48 percentage points. The higher-than-expected operating rate was mainly due to increased orders following the drop in copper prices. The operating rate is expected to continue to rise this week due to customers' stocking demand ahead of the Mid-Autumn Festival, indicating that actual copper cathode consumption is also warming up.

Looking ahead to this week, as the SHFE copper 2409 contract enters the countdown to delivery and the Mid-Autumn Festival approaches, trading in spot copper cathode is expected to be active. Even with the expected supplementation of imported copper, inventories are anticipated to continue to decrease during the week. However, due to the influence of the price spread and the need to convert imported copper to cash, spot premiums will remain under pressure. The upward space for spot premiums will be limited, and stockholders may test the high level for a premium of 100 yuan/mt.