Since the short-term shock between the February and March dates of the LME 3M copper contract on February 14, 2025, the LME copper March and April dates reverted to a backwardation structure on the evening of February 19 again. As a result, the import margin for copper cathodes has rapidly deteriorated. By February 21, the import loss for the SHFE CU2503 contract had exceeded 1,300 CNY/ton, which indicates that the copper cathodes export profit window has opened significantly again since May 2024.Back to the export window opened in May 2024, the import loss peaked at 2,000 CNY/ton, with cumulative exports reaching 230,000 tons between May and June, and June's single-month export of 150,000 tons setting a historical high. The question now is whether this price collapse will trigger another large-scale export? The following is a detailed analysis.
From the results, it is inevitable that the large opening of the export window will lead to an increase in exports. Due to the tight supply of copper concentrate, the current spot TC for copper concentrate has fallen into negative territory. Domestic spot prices have also been suppressed by seasonal inventory accumulation during the Chinese New Year. At present, the copper concentrate spot quatation period are mainly set at M+5 or M+6. As of now, the import loss for the SHFE CU2507 contract is 550 CNY/ton, and the import loss for the SHFE CU2508 contract is 450 CNY/ton. Based on the arbitrage calculation for the SHFE CU2503 contract, the export of copper cathodes can reverse the copper concentrate loss of 750-850 CNY/ton on the futures market. In 2025, with processing fees deteriorating, export hedging may become a crucial part of domestic smelters' strategies.
However, the increase in exports is unlikely to be substantial. From the perspective of long-term contract structures, due to the Chinese new copper export tax rebate policy published in 2024, copper processing enterprises have increased their demand for bonded warehouse US dollar copper. Major domestic smelters have been signing more US dollar copper long-term contracts. Signing US dollar copper long-term contracts means corresponding positions in the futures market (i.e., long positions on SHFE and short positions on LME). For domestic smelters, due to the growth of US dollar copper long-term positions in 2025, there is more flexibility in futures market arbitrage. Some spot copper may not need to be shipped to LME Asian warehouses to lock in arbitrage, thereby reducing logistics, shipping, and capital occupation costs. Additionally, due to the tight copper concentrate supply, smelters' ability to adjust spot copper allocation has decreased compared to 2024.
In summary, the deterioration in price spreads will inevitably lead to an increase in electrolytic copper exports, but due to the long-term contract structure and limited adjustability of production, the increase in exports is expected to be smaller than in 2024. As for the destinations, more supplies are likely to be sent to China's bonded zones. According to SMM, the current planned outbound electrolytic copper volume is about 10,000 to 15,000 tons, with additional quantities yet to be confirmed. SMM will continue to monitor this situation and provide further reports.
