Backwardation Structure on SHFE Copper to Change Soon amid Constantly Growing Social Copper Inventories

SHANGHAI, Jan 6 (SMM) - The Chinese New Year holidays which come earlier this year will have an impact on the structure of SHFE copper contracts sooner. The backwardation of the SHFE January copper contract over the February contract stood at between 30-100 yuan/mt this week. This structure is likely to change soon.

January would be the off-season for copper cathode due to the CNY. Public health problems caused some copper semis processing plants to shut down earlier and resume production late. Therefore, the market is pessimistic over demand. According to SMM statistics, the total social inventory of copper cathode (including bonded warehouses) has continued to increase from 125,800 mt on December 23, 2022 to 164,000 mt. In addition to increased shipments from smelters, this also reflected the poor downstream purchasing interest.

SMM reported that spot premiums of #1 copper cathode dived from 180 yuan/mt on January 3 to 45 yuan/mt on January 5. The continuous decline in the premiums can hardly sustain the expansion in the backwardation structure of SHFE January copper contract over the February contract. A reversal is of the structure is on the horizon.

To sum up, expectations over the fundamentals are unlikely to sustain the small backwardation structure. The structure will change amid stock accumulation.