Yangshan Copper Premiums Took a Downturn amid Falling SHFE/LME Copper Price Ratio

SHANGHAI, Oct 18 (SMM) - The Yangshan copper premiums stood between $110-140/mt under warrants last week, and $90-130/mt under bill of lading (B/L), with the quotation period in November. The SHFE/LME copper price ratio stood at 7.34 as of October 15.

The premiums saw sharp increase and decline amid dramatic changes in market sentiment. Market participants returned to the market following the National Day holiday. The lucrative import profits drove buyers to clear B/L cargoes and warrants through customs, but the trading volume was small due to limited offers. The import profit was around 400 yuan/mt based on the SHFE 2110 contract, but was as high as 700 yuan/mt based on the spot cargoes, and was once close to the break-even point when based on the SHFE 2111 contract. Some bullish traders held back cargoes, while some raised the premiums significantly, with the premiums up $20/mt in just two trading days. However, since the middle of the week, the rapid expansion of the LME cash-to-three-month backwardation and the sharp decline in domestic spot premiums eroded the import profits of spot cargoes, triggering strong wait-and-see attitude among buyers and sellers. There were few offers in the market, while buyers were cautious.  As of October 15, the premiums of warrants were quoted between $110-125/mt, with the average premium down $2.5/mt from a week ago, and the premiums of B/L cargoes were quoted between $90-115/mt, with the average premium down $3.5/mt. Meanwhile, with the closure of arbitrage positions on the LME and SHFE amid falling SHFE/LME copper price ratio, more imported copper will be available in the market, putting downward pressure on the Yangshan copper premiums.

As of October 15, the premiums of high-quality pyro-copper were traded at around $125/mt under warrants, $120/mt for mainstream pyro-copper, and $110/mt for hydro-copper. On the B/L front, the premiums were $115/mt for high-quality copper, $105/mt for mainstream pyro-copper, and $90/mt for hydro-copper. The quotation period is in November.  

The copper inventories in domestic bonded zones decreased 5,600 mt from a week ago to 245,500 mt as of October 15, according to SMM survey. The inventory in the Shanghai bonded zone decreased 4,100 mt to 221,500 mt, and that in the Guangdong bonded zone fell 1,500 mt to 24,000 mt. The warehouses resumed operations after the National Day holiday, and the considerable import profits attracted importers to clear cargoes through the customs. This, together with limited arrivals at ports, led to fewer inventory at the bonded zones.