Declining Inventory Fails to Halt Premium Decline, with Large Price Spread Between Futures Contracts as Main Cause [SMM Spot Copper in South China]

SMM May 13 report:

Today in Guangdong, spot #1 copper cathode was quoted at a discount of 30 yuan/mt to a premium of 120 yuan/mt against the front-month contract, with an average premium of 45 yuan/mt, down 40 yuan/mt from the previous trading day. SX-EW copper was quoted at a discount of 100 yuan/mt to 80 yuan/mt, with an average discount of 90 yuan/mt, down 60 yuan/mt from the previous trading day. The average price of #1 copper cathode in Guangdong was 78,215 yuan/mt, down 125 yuan/mt from the previous trading day, while the average price of SX-EW copper was 78,080 yuan/mt, down 145 yuan/mt from the previous trading day.

Spot market: Today, inventory in Guangdong resumed its decline, hitting a recent low, primarily due to still low arrivals. Despite the decline in both inventory and copper prices, downstream restocking demand was low due to the large price spread between futures contracts as the delivery month approached. Suppliers had to significantly reduce premiums to sell, leading to a sharp decline in premiums. As of 11 a.m., high-quality copper for the front-month contract was quoted at 120 yuan/mt, standard-quality copper at a discount of 30 yuan/mt, and SX-EW copper at a discount of 90 yuan/mt. It is worth noting that due to tight supply of high-quality copper, the price spread between high-quality and standard-quality copper widened significantly.

Overall, the decline in inventory could not prevent premiums from falling, with the large price spread between futures contracts being the main reason. It is expected that the situation will improve after delivery.

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