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Since the short-term shock between the February and March dates of the LME 3M copper contract on February 14, 2025, the March and April dates of the LME copper contract reverted to a backwardation structure on the evening of February 19. As a result, the import window for copper cathode deteriorated rapidly, with the import loss for the SHFE copper 2503 contract exceeding 1,300 yuan/mt by February 21. This indicates that the export window for copper cathode has reopened significantly for the first time since May 2024. Reviewing the May 2024 export window opening, the maximum import loss reached 2,000 yuan/mt, with cumulative exports of 230,000 mt in May-June and a record-high monthly export of 150,000 mt in June. Will this price ratio collapse trigger another wave of massive exports? What opportunities does this present for domestic smelters? The following is a detailed analysis.
From the results, the reopening of the export window and subsequent export growth remain inevitable. Due to tight copper concentrate raw material supply, the current spot TC for copper concentrates has dropped into negative territory. Meanwhile, domestic spot prices have been temporarily suppressed to a discount due to seasonal inventory buildup during the Chinese New Year. Currently, the QP for spot copper concentrates is mostly M+5 or M+6. From the current timeline, the import loss for the SHFE copper 2507 contract is 550 yuan/mt, and for the SHFE copper 2508 contract, it is 450 yuan/mt. Based on a positive arbitrage calculation for the SHFE copper 2503 contract, the export of copper cathode can offset a loss of 750-850 yuan/mt in copper concentrate on the futures market. In the context of worsening processing fees in 2025, export loss mitigation may become a crucial strategy for domestic smelters.
However, the incremental increase in exports this time is unlikely to be substantial. From the perspective of long-term contract structures, the 2024 new export tax rebate policy for copper semis has driven increased demand for bonded warehouse dollar-denominated copper from processing enterprises. Major domestic smelters have significantly increased the signing of dollar-denominated copper long-term contracts. Such contracts imply corresponding positive arbitrage positions in the futures market (i.e., long SHFE and short LME). For domestic smelters, the growth in dollar-denominated copper long-term contract positions in 2025 allows for greater flexibility in futures arbitrage. Some spot cargoes can secure arbitrage opportunities without being shipped to LME Asian warehouses, reducing logistics, shipping, and capital occupancy costs. Additionally, due to the tight supply of copper concentrate raw materials, smelters' ability to temporarily adjust spot cargoes has also declined compared to 2024.
In summary, the deterioration in the price ratio will inevitably lead to increased exports of copper cathode. However, due to the constraints of long-term contract structures and limited adjustable production, the growth is unlikely to match the scale of 2024. In terms of destinations, more cargoes are expected to be shipped to China's bonded zones. According to SMM, approximately 10,000-15,000 mt of copper cathode is currently planned for export, with additional volumes yet to be determined. SMM will continue to monitor and report on this market development.
