Yangshan Copper Premiums, published by Shanghai Metals Market (SMM) daily, have surged to USD 190/mt from USD 60/mt earlier this year. The spot premium on imported copper has now far outstripped the USD 98/mt premium on long-term contracts.

SMM attributes this rise in spot premiums to three factors.

1.       Chinese traders have signed nearly 30% fewer long-term contracts this year than the same period last year. Their contractual obligations to downstream producers, however, have not dropped significantly, meaning that they must now turn to the spot market to meet demand.

2.       Subsidies for deliveries to LME warehouses have reduced the volume of goods available to the spot market.

3.       Chinese demand for imported copper is now rising with the arrival of the peak demand period.

Trading in copper is clearly evolving to resemble that in aluminum. Surplus copper is now flowing into LME warehouses so that goods holders may profit from the difference between LME nearby and forward copper futures contracts. This has curtailed the availability of copper in the spot market, pushing spot premiums up.

However, SMM expects that spot premium has already passed its top, and will decline later.

Yangshan Copper Premium chart in the past three months --- SMM