According to a recent SMM survey, since early August, the price of imported EQ copper in the domestic copper cathode spot market has been continuously rising. Currently, the price difference between EQ copper and mainstream standard-quality copper is less than 100 yuan/mt. What are the reasons behind this narrowing price spread, and what impact will it have on the market? The following is a detailed analysis.
The reasons for the narrowing price spread of EQ copper and standard-quality copper are as follows: Supply side, the main source of imported EQ copper is Africa. Due to tight shipping capacity in the region, the volume of African cargo arriving in China decreased significantly in July.
Demand side, under the influence of the Fair Competition Review Regulations, the price of copper scrap with invoices has been high due to tight supply, narrowing the price difference between copper cathode and copper scrap. Some copper rod manufacturers have turned to imported EQ OG sources to ensure order fulfillment. As these sources are quickly consumed, the price of EQ A-grade sources has risen sharply.
Meanwhile, in July 2024, copper prices experienced a unilateral decline, with the most-traded SHFE copper contract falling from 80,000 yuan/mt to around 70,000 yuan/mt. This decline stimulated domestic inventory reduction, providing conditions for domestic consumption growth. Entering August, copper prices rebounded from the bottom, and domestic demand for copper cathode improved significantly, increasing the operating rate of copper cathode rod production. According to an SMM survey, some copper rod manufacturers in east China have seen a surge in orders. Due to its high cost-performance ratio, EQ sources were prioritized, leading to a concentrated increase in demand.
Lastly, due to the narrowing contango structure of SHFE copper, holders actively converted their warrants into spot sales. Spot premiums for standard-quality copper in Shanghai and Guangdong were continuously suppressed to a discount of 50-0 yuan/mt. With the price of standard-quality copper unable to rise significantly, the price spread between EQ copper and standard-quality copper narrowed rapidly.
Currently, the rise in EQ copper prices has led to the following changes in the spot market: 1. The increase in EQ copper prices has forced the price of registered sources to rise, accelerating the transformation of the supply-demand structure during the inventory reduction cycle. 2. The upward trend in domestic premiums has increased confidence in the opening of the import window for the imported copper market in the Shanghai bonded zone. The high contango structure of the LME has given holders the capital to hold back cargoes, leading to a short-term depletion of EQ copper spot sources in the imported copper market in the Shanghai bonded zone and driving up premiums for imported copper in the Shanghai bonded zone.
