SHFE/LME Price Ratio Widens in December, Boosting Yangshan Copper Premiums; Significant Destocking in Bonded Zones with Robust Demand [SMM Analysis]

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Yangshan copper premiums in December saw an overall upward shift in the center, with the market performing well in mid-to-late December. In early December, USD copper market traders focused on annual long-term contract negotiations, leading to inactive spot transactions. By mid-to-late December, as annual long-term contracts were mostly finalized and copper prices plummeted, the import window opened rapidly, boosting USD copper market transactions and significantly increasing Yangshan copper premiums. Due to the implementation of the policy canceling export tax rebates for copper semis in December, downstream processing enterprises showed strong demand for warehouse warrants in the bonded zone, resulting in continued destocking of domestic bonded zone inventory. By early January 2025, inventory in the Shanghai Bonded Zone had dropped to only 15,000 mt.

December imports are estimated at 345,000 mt
The import volume of copper cathode in December is estimated to decrease by 4.11% MoM but increase by 10.71% YoY, reaching 345,000 mt. The cumulative import volume of copper cathode from January to December is estimated at 3.7132 million mt, up 5.76% YoY. According to SMM, the total import volume of copper cathode in December is expected to slightly decrease MoM, mainly due to port congestion in Africa, causing unstable shipping schedules in December. Additionally, shipments of copper cathode from Japan and South Korea to China in December decreased MoM. However, with the import profit window widely open, the import volume still showed a significant YoY increase. Looking ahead to January, SMM expects the total import volume of copper cathode to decline MoM compared to December. This is attributed to the gradual conclusion of USD copper foreign trade long-term contracts in January and the upcoming Lunar New Year holiday, leading to a noticeable reduction in arrivals in mid-to-late January. The total import volume is also expected to decrease YoY.

December exports are estimated at 10,000 mt
Regarding the closure of the export window in December, SMM understands that apart from long-term contracts, domestic smelters did not arrange additional copper cathode exports in December. Therefore, SMM estimates the export volume of copper cathode in December to be around 10,000 mt. Furthermore, smelters indicated that they expect to maintain long-term contract exports in January 2025 and initiate negotiations for 2025 export long-term contracts, with the total export volume expected to slightly decrease.

Looking ahead to January 2025, SMM expects Yangshan copper premiums to pull back from current highs, with a noticeable price spread between warehouse warrants and B/L. From the demand perspective, downstream enterprises have established stable demand for bonded warehouse supplies, making bonded zone inventory more likely to decrease than increase before the execution of USD copper export long-term contracts by smelters in 2025. Thus, although the import window is gradually closing, warehouse warrant prices are expected to remain high. With the Lunar New Year holiday approaching, early January arrivals have already been locked in for import, while mid-to-late January arrivals are expected to see poor transactions due to concerns over holiday-related capital occupation and post-holiday domestic inventory buildup, which could lead to lower premiums. If the SHFE/LME price ratio continues to decline, prices are more likely to fall than rise. From the perspective of arrivals, SMM understands that January will see a higher volume of supplies from South America and Japan and South Korea. However, the overall import volume of copper in January is expected to slightly decrease compared to December, partly due to fewer total trading days. As a result, the USD copper market in January is expected to remain sluggish, with a noticeable price spread between warehouse warrants and B/L.

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