Spot cargoes offered below SHFE copper prices

SHANGHAI, Mar 8 (SMM)—Spot discounts in Shanghai shrank from over 100 yuan/mt to around zero as SHFE copper prices fell to around 66,000 yuan/mt. Consumption fell short of expectations despite dip purchasers and traders contributed to most of the trades. Spot quotes are expected to rally due to the approach of delivery and a price spread of around 100 yuan/mt between the SHFE front-month and next-month contracts.

In Shandong, spot quotes rallied amid continued declines in SHFE copper prices and improving downstream buying interest. Spot discounts shrank from 150 yuan/mt at the beginning of the week 40 yuan/mt at the end of the week. Some smelters sold with discounts of zero. Finished product inventory at smelters declined rapidly amid brisk shipments. Spot premiums are expected to occur this week amid stabilising SHFE copper prices.

In north China, spot premiums rebounded last week. Spot copper was quoted with discounts of 470-410 yuan/mt, or an average discount of 440 yuan/mt, on February 26, and was quoted with discounts of 300-240 yuan/mt, or an average discount of 270 yuan/mt on March 5, up 170 yuan/mt. Sellers raised their quotes even as copper prices plunged. This combined with dip buying bolstered spot premiums. Spot premiums are likely to rise this week amid recovery in downstream consumption and lower inventory at smelters.

Spot quotes in Guangdong trended higher last week due mainly sharp declines in copper prices. The most active SHFE copper contract prices fell 3,800 yuan/mt last week. As of March 5, spot premiums for high-quality copper rose 170 yuan/mt from February 26 to 100 yuan/mt, and discounts for standard-quality copper stood at 80 yuan/mt, a gain of 140 yuan/mt. Hydro-copper was quoted with discounts of 130 yuan/mt, up 130 yuan/mt from a week earlier. On Friday, the price spread on standard-quality copper between Shanghai and Guangdong shrank 80 yuan/mt to 0 yuan/mt, leaving no opportunities for cargo transfer. As of Friday March 5, total inventories in Guangdong stood at 75,400 mt, an increase of 8,381 mt from February 26.

Arriving shipments fell 3,400 mt to 25,500 mt last week, well above the weekly average 18,200 mt for 2020, driven by concentrated arriving shipments post-CNY. Shipments arrivals of domestic copper decreased from the previous week, while arriving shipments of seaborne cargoes increased. Shipments from Guangdong increased 3,800 mt to  16,900 mt, lower than the weekly average of 18,100 mt for 2020.

Precipitous declines in copper prices have bolstered downstream buying interest. All the copper downstream processing plants in Guangdong have restarted production after resumption at two copper rod plants last week.  We expect that as copper prices fall to a more reasonable level and purchases by end-users  rise further, operating rates at processing companies should climb further. Spot premiums will continue to rise leading up to delivery.