Chinese Buyers Call for Floating Price-Fixed Formula Scheme for Copper Term Premiums

SHANGHAI, Nov. 16 (SMM) - Chile's Codelco, the world's top copper producer, has offered a premium of $98 per tonne for 2016 term shipments of the refined metal to China. 

The cut, down by more than a quarter to a three-year low, underscores the sluggish outlook for China’s demand in 2016, and also reflects a robust growth of domestic refined copper supply in China. 

Does that mean the premium after a sharp cut at a rational level?

“The answer is probably no, as current economic conditions in China are not in good shape,” SMM copper analyst said. 

Faced with poor consumption, domestic downstream producers are calling for a floating price fixed formula scheme for copper premiums for term shipments, as this will be more fair, and more truly to reflect real demand.

According to SMM data, Shanghai spot premiums have been lower than the levels seen in previous years so far this year. Only three months of the first ten months this year saw Shanghai spot premiums average above 90 yuan per tonne, namely April, June and July. 

Firm premium in June and July, a traditional weak demand period, is due mainly to large-scale unit maintenance, and continuous declines in domestic inventories after high consumption in early Q2 also supported high premiums during the period, SMM explained. 

Copper inventories on the SHFE registered a total drop of 145,000 tonnes after a 13-week straight decline during April to July, according to data.  

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