Spot Premiums Opened High and Moved Downwards in Early December: Progress of Copper Cathode Long-Term Contracts? [SMM Analysis]

At the end of November, due to tight supply and market demand for cargoes with invoices dated that month, spot premiums in Shanghai slightly increased. However, entering December, spot premiums in Shanghai opened high and moved downwards, with some low-priced cargoes showing discounts again. Meanwhile, the Shanghai-Guangdong price difference widened to nearly 300 yuan/mt.

According to SMM data, as of Thursday last week, the national mainstream social inventory decreased by 12,900 mt to 130,300 mt, with Shanghai's inventory decreasing by 9,400 mt to 99,100 mt, which is 59,500 mt higher than the same period last year. Guangdong's inventory decreased by 2,900 mt to 9,400 mt, which is 1,100 mt lower than the same period last year.

Due to the continuous arrival of imported high-quality copper and non-registered cargoes at the end of two weeks ago, the price spread between high-quality copper and standard-quality copper in the spot market narrowed last week. The noticeable arrival of non-registered cargoes shifted downstream purchasing preferences towards low-priced cargoes, leading to price suppression in the market. From the beginning to the middle of the week, spot premiums were continuously dragged down.

In the latter half of the week, although downstream buyers showed a sentiment of rushing to buy amid continuous price rises, the price difference between copper cathode and copper scrap widened. The operating rate of copper cathode rod producers weakened WoW, while the operating rate of secondary copper rod producers increased WoW, further suppressing spot premiums for copper cathode.

However, it was clearly observed that the spot premiums/discounts price difference between Shanghai and Guangdong widened again, indicating arbitrage opportunities between the two regions. As the SHFE copper 2412 contract rollover and the final round of year-end long-term contract deliveries approach this week, it is expected that the available circulating supply will be relatively tight, providing support for spot premiums/discounts.

According to SMM, on the evening of December 5, 2024, Antofagasta first finalised the 2025 copper concentrates long-term contract TC/RC with Jiangxi Copper Corporation at $21.25/mt and 2.125¢/lb, respectively. On December 6, 2024, Jiangxi Copper Corporation, China Copper, Tongling Nonferrous, Jinchuan Group, and Daye Nonferrous finalised the 2025 copper concentrates long-term contract TC/RC benchmark with Antofagasta at $21.25/mt and 2.125¢/lb.

As TC gradually settles, smelters will also begin negotiations for domestic long-term contracts. According to SMM, some smelters have already started downstream visits and set the tone for the 2025 domestic copper cathode long-term contract negotiations during the CESCO period. Although the actual spot transaction average prices in various regions in 2024 were all at discounts, considering the losses smelters will face at the TC end next year, it will be difficult for the fixed prices of 2025 domestic copper cathode long-term contracts to meet the expectations of downstream buyers. The initial quotes may still be above 100 yuan/mt.