LME Base Metals Cash to 3-Month Backwardation/Contango (2017-9-21)

Morgan Stanley has lowered its global copper ore supply growth expectations to basically flat or even declining. The logic behind copper prices hitting new highs is shifting from short-term "panic buying" to a resonance of tightening supply and growing demand: Chilean production remains under pressure; meanwhile, demand expansion from data centers, energy transition, and other sectors further reinforces the tight supply-demand balance.

[SMM Shanghai Spot Copper] Looking ahead to tomorrow, SHFE copper prices have recently been trading above 110,000 yuan/mt, and the dampening effect of high copper prices on end-user procurement has become increasingly evident. Although some end-users, concerned that copper prices may continue to rise, made small-volume restocking purchases when futures pulled back, overall procurement remained primarily need-based, with a strong wait-and-see sentiment prevailing in the market. By sector, orders at wire and cable enterprises were relatively weak, with some enterprises showing reduced willingness to take on new orders, dragging on copper cathode purchases. Orders at copper foil enterprises were relatively stable, with demand resilience still intact, but their boost to overall spot consumption remained limited. Meanwhile, the backwardation spread between the front-month and next-month contracts widened further to 560–630 yuan/mt, and suppliers continued to face pressure from position rollovers and shipments. Intraday, standard-quality copper quotes were lowered repeatedly before transactions were concluded, reflecting that downstream acceptance of current high copper prices and spot premiums remains limited. Overall, under the combined influence of weak end-use demand, strong wait-and-see sentiment, and a backwardation structure fluctuating at highs, spot prices against the SHFE copper 2609 contract are expected to remain at a premium tomorrow, though the overall center may edge slightly lower. However, with need-based buying still absorbing some low-priced cargoes after transactions, further downside room is expected to be relatively limited.