The backwardation structure in both markets expanded significantly, with the expectation of tight supply in May coming true [[SMM Yangshan Copper Weekly Review]]

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This week (April 28-30), the weekly average price range of Yangshan copper premiums B/L transactions was US$106-125.5/mt, with QP in June and an average price of US$115.75/mt, up US$0.75/mt WoW. The price range of warrants was US$97-105.5/mt, with an average price of US$101.25/mt, up US$7.58/mt WoW, with QP in May. The CIF B/L price of EQ copper was US$69.25-79.25/mt, with an average price of US$74.25/mt, up US$4.25/mt WoW, with QP in June. As of May 9, the SHFE/LME copper price ratio for the SHFE 2505 contract was 8.315, with an import profit/loss of around -200 yuan/mt. As of Thursday, the LME 3M-May copper spread was in backwardation of US$51.26/mt, and the spread between the April and May swap fees was in backwardation of US$18.99/mt.

Currently, the actual price of high-quality ER copper warrants is US$108/mt, mainstream pyrometallurgical copper is US$104/mt, and SX-EW copper is US$98/mt. The price of high-quality copper B/L is US$126/mt, mainstream pyrometallurgical copper is around US$116/mt, and SX-EW copper is US$106/mt. The CIF B/L price of EQ copper is US$72-84/mt, with an average price of US$78/mt.

After the holiday, the US dollar copper market continued the hot trend from before the holiday. The main reasons for the continuous rise in the center of premiums are as follows: Firstly, during the domestic Labour Day holiday, copper inventories decreased instead of increasing. The instability of spot premiums under the high backwardation structure of SHFE increased, prompting some downstream consumers to turn to bonded zone sources. Secondly, the SHFE/LME price ratio showed a continuous warming trend this week, gradually evening out the import profit/loss for the SHFE 2505 contract, encouraging suppliers to arrange imports for some B/Ls arriving during the holiday, with very limited spot supply. Finally, according to SMM, there is still a gap in the execution of long-term contracts in the May US dollar copper market, especially for EQ copper. Some traders are actively seeking cargoes to fulfill long-term contracts, driving up market premiums. Overall, EQ copper prices have risen rapidly, with the price spread between registered warrants being less than US$10/mt in extreme cases, while the prices of CCC-P, ENM, and ILO B/Ls have pulled back as the LC spread narrows. Looking ahead, the backwardation structure in the near-term SHFE and LME copper markets has significantly widened in May. The large cancellation of LME warehouse inventories has attracted market attention, and the expectation of a supply deficit has been realized. With the import profit window opening widely, it is expected that the liquidity of near-month B/Ls and warrants arriving at ports will decrease after the backwardation structure widens, providing strong support at the bottom of Yangshan copper premiums.

According to the SMM survey, as of Thursday (May 8), domestic bonded zone copper inventories decreased by 5,000 mt from the previous period (April 30) to 76,800 mt. Among them, bonded copper inventories in Shanghai decreased by 5,000 mt to 66,000 mt MoM, while bonded copper inventories in Guangdong remained unchanged MoM.The continuous decline in bonded area inventory this week was primarily driven by demand within the customs area. As the SHFE/LME price ratio continued to recover and domestic inventory levels gradually fell to low levels, some downstream players, driven by the high backwardation structure on SHFE, turned to seek sources in the bonded area. Consequently, the bonded area continued its destocking trend. Looking ahead, the high premium on bonded warrants is expected to weaken downstream purchasing sentiment. However, as the domestic destocking process has not yet concluded, bonded area sources will still passively flow into the domestic market. It is anticipated that inventory will continue to decline next week.

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