Monday marked the last trading day for the SHFE copper 2412 contract, with spot prices against the SHFE copper 2501 contract showing high premiums. Spot premiums against the SHFE copper 2412 contract exceeded 100 yuan/mt. From Tuesday, as spot trading officially transitioned to the SHFE copper 2501 contract, premiums surged by nearly 100 yuan/mt. What factors are driving this phenomenon? How long can these high premiums persist?
From an inventory perspective, SMM data showed that social inventories of copper cathode in the Shanghai region began to exhibit active destocking since late November. According to SMM, while imported copper arrivals were normal, domestic supply was limited. However, downstream sectors rushing for orders in late November led to significant outflows from warehouses, resulting in inventory reduction. As of Monday, SMM copper cathode inventories in the Shanghai region stood at only 72,700 mt, down 17,300 mt WoW.
On Monday, the spot market experienced tight supply. With the SHFE copper 2412 and SHFE copper 2501 contracts showing a contango of 100 yuan/mt, market quotes for the SHFE copper 2501 contract were around a premium of 50 yuan/mt. This was mainly due to the delivery volume required for futures warehouse warrants and open interest being closely aligned. During the afternoon trading session, the price spread between the contracts widened to a backwardation of 480 yuan/mt by the close. As the SHFE copper 2412 contract entered its delivery cycle, SHFE copper futures warehouse warrants gradually increased, primarily at Steinweg Yangshan and Steinweg Waigaoqiao.
During the morning trading session, some warehouse warrants began to flow out, causing the overall premium center to shift downward. It is expected that today, under the dual impact of imported copper replenishment and warehouse warrant outflows, spot premiums will be suppressed.
On the consumption side, due to high spot prices in the Shanghai region this week, self pick-up transactions improved in Shandong and Anhui provinces, with downstream buyers preferring to pick up directly from smelters. However, as year-end approaches, overall downstream purchasing sentiment has weakened, and annual trade activities for traders are nearing completion. Spot market transactions are expected to gradually wind down, making it difficult for spot premiums to sustain levels above 100 yuan/mt.
