SHANGHAI, Nov 2 (SMM) – SMM understood that Codelco plans to set the benchmark premium for long-term contracts of copper cathode to China in 2022 at $105/mt, much higher than the $88/mt in 2021. Many domestic traders have received offers, but none have accepted them.

The copper import market was completely different in the first half of the year from the second half of the year. The import window has remained closed in the first half of the year, and the demand for customs declaration was extremely poor. Yangshan copper premiums have been falling all the way and even hit the lowest level in SMM's records. The long sluggish copper import market in China has resulted in varying degrees of decline in the amount of copper cathode exported to China by other countries.

Due to the continuous disruptions to the production at domestic smelters, the domestic fundamentals were strong on the back of domestic power rationing, shortage of copper scrap and limited inflows of imported goods. The inventory continued to fall, and the SHFE/LME copper price ratio continued to rally. The spot import profit window has opened many times and the profit was considerable, bolstering cancelled warrants premiums to exceed $140/mt. However, the strong backwardation structure on LME copper amid a short squeeze in October has troubled the traders. And the import premiums slid to around $90/mt.

As of November 2, the average SMM Yangshan copper premium under warrants stood at $63.53/mt, and the average premium for bill of lading stood at $63.71/mt, well below the benchmark premium of $105/mt.

In 2022, as domestic smelting and refining projects are put into operation, the annual output of copper cathode is expected to reach 10.35 million mt. However, the copper cathode consumption will hardly have room for growth, constrained by the downside risk of the real estate market. The market share of imported copper will further shrink.

Traders have shown a consistent low acceptance for the high benchmark premium against the overall weakness of the import market during the year and the pessimistic expectations for next year.

At present, the buyers and sellers are still in preliminary negotiations on the long-term orders next year. No actual transaction has been heard. Some traders told us that they would still have further contact with Codelco, and their expected premium for long-term orders stands at below $100/mt. SMM will continue to track the signing of long-term orders or imported copper.