[SMM Analysis] the LME copper spot discount has reproduced the back structure for more than a year. Who is the pushing hand?

SMM7 March 6: July 3 LME0-3 structure from contango to back, is currently 6.50 US dollars / ton; since the end of April 2019, LME0-3 Copper has maintained contango structure for a long time, while from late May this year, contango structure gradually narrowed, mainly due to the impact of the epidemic, supply-side disturbance intensified, while consumption still has a strong support.

With the acceleration of overseas economic restart process, the prospect of copper consumption recovery is promising, and the continued decline of LME copper inventory also confirms the logic of consumption repair. Overseas depots have been more pronounced since mid-May, with LME inventories recording 1.9785 billion tons as of today, down 8525 tons from the previous trading day. At the same time of inventory reduction, the proportion of LME cancellation warehouse receipts remains at a high level of 46 per cent, leading the market to strengthen expectations of a continuous decline in inventory in the later period, prompting the transformation of LME from contango to back structure, and the back structure has the possibility of further expansion.

In the short term, LME spot prices are expected to remain strong, mainly because supply-side disturbances have not slowed down. Codelco, Chile's national copper company, said on Saturday that it had temporarily suspended the expansion of its El Teniente mine in order to stop the spread of the epidemic. Earlier, Chile's state copper announced the temporary closure of the smelter at the Chuquicamata mine, but continued its mine operations across the country and reduced its operating equipment. BHP Billiton also announced a significant reduction in the operation of the Cerro Colorado copper mine in Chile.

According to SMM, the CSPT team held the latest third-quarter Floor price meeting online on Friday and confirmed that the third-quarter TC/RC floor price was 53 U.S. dollars / ton and 5.3 cents / pound, and the SMM June copper concentrate index was 51.71 U.S. dollars / ton. Due to the great uncertainty of epidemic factors in the second quarter, the floor price was not determined at the quarterly meeting of the group, while the floor price determined in the third quarter was much lower than the US $67 / ton in the first quarter, objectively reflecting the tightening trend in the supply of imported copper concentrates. at the same time, the raw material supply situation in the second half of the year is still very grim.

As of Friday, the SMM copper concentrate index (weekly) was at $51.37 / tonne, down 12 cents / tonne from June 19. Last week, the copper concentrate market was relatively light, SMM learned that a small number of spot transactions in the 50 low, trading range has not changed significantly. However, with the gradual tension of the epidemic situation in Chile, the seller's bearish sentiment has increased, and the offer still has a downward trend in the second half of the week.

The overseas back structure further widened the import loss, leading to a further decline in the Yangshan copper premium. The decline of inventory in the bonded area slows down, and there are opportunities for further growth. According to SMM research, copper inventories in the Shanghai Free Trade Zone decreased by 1000 tons to 208500 tons month-on-month on Friday. Inventories fell in the second week, but the decline slowed significantly. The upsurge of copper futures suppressed domestic consumption, and the price spread of fine waste continued to expand to more than 2000 yuan / ton, further squeezing out the demand for refined copper, superimposed by the influx of imported copper into China last week, and the inventory of the three places increased significantly.

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