Price Spread Between Futures Contracts Widens Significantly, Downstream Restocking Weakens, Spot Premiums Jump Initially and Then Pull Back [[SMM Weekly Review of Spot Copper Cathode in South China]]

SMM News on May 8:

Guangdong region: This week, the premiums and discounts in the region exhibited a trend of jumping initially and then pulling back. At the beginning of the week, premiums rose due to a decline in inventory. However, as the price spread between futures contracts widened rapidly, downstream procurement demand decreased, forcing suppliers to continuously lower premiums for shipments. As of Thursday, high-quality copper was quoted at a premium of 250 yuan/mt, a decrease of 50 yuan/mt from last Wednesday. Standard-quality copper was quoted at 140 yuan/mt, a decrease of 10 yuan/mt from last Thursday. SX-EW copper was quoted at a premium of 90 yuan/mt, also a decrease of 10 yuan/mt from last Thursday. Due to an increase in the supply of high-quality copper, the price spread between it and standard-quality copper narrowed. On Thursday, the price spread between premiums and discounts for standard-quality copper in Shanghai and Guangdong was 50 yuan/mt higher in Shanghai, indicating limited room for cross-regional cargo transfers due to the small price difference. According to SMM statistics, as of Thursday, the total inventory in Guangdong warehouses was 15,300 mt, an increase of 700 mt from last Wednesday. The total warrants amounted to 6,000 mt, a decrease of 800 mt from last week. Specifically: This week, warehouse arrivals were 9,200 mt/week, a slight increase of 200 mt/week from last week, significantly below the annual average (14,000 mt/week). During the Labour Day holiday, warehouse arrivals did not increase significantly compared to last week, with limited arrivals of both domestically produced and imported copper. Outflows from warehouses were 8,500 mt/week, a decrease of 10,900 mt/week from last week, also significantly below the annual average (14,200 mt/week). Due to many copper rod mills taking a 2-day holiday during the Labour Day holiday, consumption decreased, leading to a reduction in outflows from warehouses.

Looking ahead to next week, it is understood that a smelter in southwestern China will resume normal production, with shipments expected to increase. In terms of downstream consumption, due to the current large price spread between futures contracts, downstream enterprises' procurement volumes have decreased, and consumption is expected to be weaker next week than this week. Therefore, we believe that next week will see an increase in supply and a decrease in demand, with weekly inventory expected to rise again. Moreover, given the large price spread between futures contracts and the approaching delivery period, the probability of spot premiums continuing to decline is very high.

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