Copper Cathode Long-term Contract Negotiations: Why Did South China Spot Premiums Surge While East China Lagged? [SMM Analysis]

This week was "Asia Copper Week." During the concentrated negotiations for domestic and international long-term contracts for copper cathode and copper concentrates, spot premiums in South China surged sharply since last week, far exceeding other regions. The market speculated whether this was in preparation for long-term contract negotiations. In contrast, spot premiums in East China showed a lack of momentum.

According to SMM, the fixed long-term contract prices for copper cathode in South China for 2024 were around 190 yuan/mt, while in East China, they were around 150 yuan/mt. In 2024, with high copper prices, the apparent supply of copper cathode increased, leading to inventory buildup in the market. SHFE copper near-month futures mostly showed a contango structure, and SMM annual average spot premiums were lower than the fixed long-term contract levels for 2024.

Entering November, South China began to show destocking, and spot premiums started to rise. On the day, SMM quoted Guangdong #1 copper cathode spot premiums at 280-340 yuan/mt. On one hand, as copper prices fell, consumption in Guangdong improved, and outflows from warehouses increased. On the other hand, recent smelter maintenance in South China led to fewer shipments, and imported arrivals were not concentrated; reduced supply made suppliers stand firm on quotes. Therefore, the rise in spot premiums in South China had a reasonable basis, but during the long-term contract negotiation period, it could not be ruled out that suppliers were intentionally standing firm on quotes in preparation for the 2025 long-term contract negotiations.

Observing East China, with Shanghai as the trading center, recent inventories in Shanghai also showed continuous destocking. According to SMM, as copper prices fell, downstream buying interest increased, and outflows from warehouses rose. However, imported copper continuously flowed into Shanghai, mainly low-priced non-registered cargo, dragging down mainstream copper transactions in Shanghai. Meanwhile, traders observed the Shanghai-Guangdong price difference, leading to potential price suppression for Shanghai cargo. Therefore, despite copper prices falling sharply below 75,000 yuan/mt, prices in Shanghai did not significantly rise.

Comparing historical price trends, during the mid-November long-term contract negotiation period, spot premiums in both Shanghai and Guangdong showed a slight upward trend, but this did not have a direct absolute impact on the next year's long-term contract negotiations. Given the "shortage of ore but not copper" situation in 2025, both buyers and sellers in copper cathode long-term contract negotiations faced pressure. According to SMM, Codelco's long-term contract prices for mainland China and Taiwan China in 2025 are $89 and $85, respectively, unchanged from last year; however, market acceptance might decrease. Based on current market discussions, the proportion of fixed-price long-term contracts in the domestic market for 2025 would decrease, while the proportion of floating long-term contracts and spot orders would increase, leading to higher trading activity in the spot order market in 2025.