Spot Premiums will Unlikely be Kept at 300 yuan/mt if the Spread between the Front-month and Next-month Contracts Continues to Expand

SHANGHAI, May 5 (SMM) - Shanghai copper cathode spots were quoted at premiums of 280-340 yuan/mt over 2205 contract today. The average premium was 310 yuan/mt, down 65 yuan/mt from the previous trading day. Standard-quality copper was traded at 73,650-73,820 yuan/mt, and the high-quality copper was traded at 73,670-73,850 yuan/mt. On the first trading day after the Labour Day holiday, SHFE copper prices dropped from 73,650 yuan/mt to 73,330 yuan/mt after opening, and then the prices rebounded to the daily moving average and remained rangebound around 73,470 yuan/mt.

Trading in the spot market was sluggish today, and the quotes fell slightly. In the early trading, the market saw almost no quotes for standard-quality copper. Spot premiums of high-quality copper dropped from 340-350 yuan/mt to 320 yuan/mt, and finally fell to around 300 yuan/mt. However, only a few transactions were made. Quotes of standard-quality copper did not appear until around 10 o'clock. Under the pressure of quotes for high-quality copper, standard-quality copper was quoted at premiums of 300 yuan/mt, attracting few transactions. As the buyers continued to lower their prices, the trading was heated when the premiums dropped to 280-290 yuan/mt. Due to the inflow of a large number of imported goods with the improvement of the price ratio, the quotations of hydro-copper could not stay firm and fell rapidly. As a result, hydro-copper was quoted at premiums of 160-190 yuan/mt, expanding the spread between hydro-copper and standard-quality copper. 

On the first trading day after the Labour Day holiday, the SHFE/LME price ratio was improved due to the decline in LME copper prices during the holiday. Thanks to the profitable imports, imported copper flowed into the domestic market, which suppresses the premiums in China to a certain extent. Moreover, after the holiday, the market consumption still fell short of expectations. Strict pandemic control measures in Shanghai and its surrounding areas still hindered the consumption and the downstream restocking demand. The arrival of smelters in Jiangsu increased, and overall premiums were quoted at 300-500 yuan/mt, narrowing the spread between Jiangsu and Shanghai. Even though the domestic all-time low inventory supported the premiums, the spread between front-month and next-month contracts in the backwardation structure expanded further to 350-400 yuan/mt in May and will continue to expand, which hinders the short-term premiums before the delivery of 2205. In the future market, if the spread between the front-month and next-month contracts widens to over 400 yuan/mt, the spot quotes can hardly be kept at premiums of 300 yuan/mt.
 

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The above representation and data is based on market information SMM believes to be reliable at the time of acquiring as well as the comprehensive assessment by SMM research team, and any and all information provided in this article is for reference only. This article does not constitute a direct recommendation for investment or any decisions in any form and clients shall act on their own discreet and any decisions made by clients are not within the responsibility of SMM.