Yangshan Copper Premiums Expected To Fall

As of last Friday, Yangshan copper premiums with a quotation period in June stood at $35.6-50.6/mt under warrants during May 29-June 2, with the average up $8.5/mt from a week earlier. Those stood between $51.2-66.2/mt under bill of lading with a quotation period in July, with the average up $3.3/mt. As of June 2, the SHFE/LME copper price ratio stood at 8.06, and import profit stood at 11.27 yuan/mt.

During the week, the SHFE/LME copper price ratio continued to weaken, and the import profit narrowed sharply. In terms of warrants, the supply of goods in the market was almost concentrated at large sellers. The opening of the import window and fund arbitrage led to high profit of importers. This, combined with high spot premiums in the domestic market, pushed up Yangshan copper premiums under warrants. In terms of bill of lading, as the SHFE/LME copper price ratio fell, there were offers for shipments which will arrive in July. Traded premiums fell slightly.

This week, the supply of goods under bill of lading which will arrive in early June will continue to grow, which may gradually have an impact on domestic spot premiums. As the proportion of overseas cancelled warrants rebounded, the market's expectations for the continued accumulation of LME copper inventories have declined. The LME 0-3 contango structure narrowed rapidly during the week. Yangshan copper premiums are likely to fall further considering the SHFE/LME copper price ratio.

As of last Friday, copper inventories in the domestic bonded zones decreased 13,000 mt from May 26 to 101,600 mt, according to the latest SMM survey. Inventory in the Guangdong bonded zone dipped 300 mt to 10,000 mt, and inventory in the Shanghai bonded zone fell 12,700 mt to 91,600 mt. Import profits shrank significantly during the week, keeping buyers on the sidelines. Trades of imported copper were subdued, and shipments from bonded zones decreased. Meanwhile, arriving shipments of imported copper increased at the month-end. The declines in bonded zone inventories thus slowed down noticeably.

This week, shipments arrivals under bill of lading in early June will continue to grow. This, combined with narrower import profits, will continue to slow down inventory declines in the domestic bonded zones.