Demand from falling copper prices lead to record low SHFE inventory

SHANGHAI, Aug 7 (SMM) – Downstream restocking on falling copper prices, and greater demand from rod producers lowered copper inventories across SHFE warehouses to the current six-month low, SMM believes.

From the start of April, copper inventories across SHFE warehouses declined nearly 40% and stood at 192,817 mt as of August 3. This is the lowest level from February 9. Inventories lost over 60,000 mt in July, with stocks across bonded areas down 10,000 mt on the month.

Copper prices continued to decline in July, with the SHFE 1809 contract down to a low of 47,520 yuan/mt on July 9. Weaker copper prices and short supplies of copper scrap narrowed the price gap of the two in July. The smaller spread drove copper rod producers towards refined copper instead of scrap for raw materials.

In July, the operating rate for copper rod producers that used refined materials gained 0.31 percentage points from June and stood at 81.73%. This compared to a decline of some 20 percentage points, to 44.17%, for operating rates at producers that used scrap.

Copper production in June-July fell from April-May as high temperatures and maintenance across smelters slowed operations. Inflows of imported copper have been limited from the start of June, due to thin profit margins and declining premiums of imports.

SMM expects copper imports to remain at lows, especially after China’s central bank on August 3 imposed a reserve requirement of 20% on the trading of foreign exchange forward contracts.

Lower imports buoyed domestic spot offers to a premium of 50-110 yuan/mt on Tuesday August 7, from a discount of 200-150 yuan/mt at the end of June. As of August 7, high premiums deterred buyers as the delivery date of August 15 approached.

Copper stocks across LME warehouses declined for five consecutive days as of Monday August 6, to 249,900 mt. This is down 35% from the end of March. Inventories across COMEX warehouses shrank for 18 consecutive days, to 202,786 mt.