May 15 marked the last trading day for the SHFE copper 2505 contract, with the spot market generally starting to quote prices against the SHFE copper 2506 contract. As the price spread between futures contracts mainly fluctuated within a BACK range of 420-450 yuan/mt on the last trading day, spot prices against the SHFE copper 2506 contract were at a premium of 400-450 yuan/mt. As the delivery of the SHFE copper 2505 contract approached, the open interest corresponding to the delivery volume was originally significantly different from the existing delivery warrants. On May 14, amid favourable macro front and fundamental support, SHFE copper surged above 79,500 yuan/mt, only to see selling pressure increase on the futures market, erasing the gains.
On May 13, SHFE copper futures warrants rose by 9,073 mt to 29,157 mt, with Shanghai region contributing an increase of 7,521 mt to 20,790 mt. Notably, C.Steinweg Waigaoqiao's warrants increased by 5,945 mt to 5,970 mt. On May 14, SHFE copper futures warrants surged by 20,912 mt to 50,069 mt, with Shanghai region adding 18,001 mt to reach 38,791 mt. C.Steinweg Waigaoqiao's warrants increased by 4,030 mt to 1,000 mt. In just two days, warrants in the Shanghai region surged, and the usually inactive C.Steinweg Waigaoqiao's total futures warrants reached 10,000 mt.
Over the past three years, C.Steinweg Waigaoqiao's futures warrants have generally remained at a low level. Significant increases in warrants have mainly occurred around the time of contract rollover for SHFE copper futures, particularly when the inter-month BACK spread is high, such as on July 15, 2022, and May 15, 2025. As the inter-month BACK spread widens, the growth in warrants at this delivery warehouse accelerates.
It is noted that the growth rate of warrants at this warehouse is rapid, and so is the rate of reduction. Generally, after the front-month contract experiences a high BACK spread during rollover, and this factor leads to a high premium in the next-month contract, the warrants at this warehouse are quickly converted into spot cargo for sale, mostly taken by downstream end-users. After the delivery of the SHFE copper 2505 contract, the significant outflow of warrants is expected to be the most direct factor constraining spot premiums.
Looking ahead to the SHFE copper 2506 futures month, domestic smelters will continue to undergo maintenance, with limited direct shipments of smelter cargo to warehouses. However, due to the high spot premiums of SHFE copper attracting cargo from north China, it is expected that some cargo from north China will flow into east China. The mutual cancellation of 91% of tariffs between China and the US has led to a recovery in end-user export orders. According to SMM and market communications, orders for electronic and electrical appliances have significantly improved, and orders from Southeast Asian markets have increased YoY. Domestic factories even have recruitment needs. However, according to feedback from enterprises, factories currently have sufficient raw materials for copper wire and cable and other copper semis. It will take 10-25 days for this to be transmitted to the mid-to-downstream copper processing materials sector. Therefore, it is expected that the operation rate of copper rod and other products will improve again in June (calendar month), and attention can be paid to downstream stocking before the Dragon Boat Festival.
The following risk factors exist during this period:
It has been observed that LME Asia inventory is being significantly drawn down, with rapid destocking occurring at Asian warehouses. Most of this inventory consists of cargoes previously exported by domestic smelters. There is a risk that if these cargoes are subsequently brought back to China, it could put downward pressure on spot premiums. However, caution should be exercised if the BACK price spread between futures contracts for the SHFE copper 2506-2507 contracts continues to widen. In such cases, these cargoes may still exist in the form of futures warrants at SHFE delivery warehouses.
In summary, after contract rollover, spot premiums are expected to undergo three stages: First, due to warrant restrictions limiting the circulation of a large amount of available cargoes, spot premiums will experience a temporary spike after contract rollover; Second, the release of delivery warrants will put downward pressure on premiums, causing them to pull back; Third, after warrants are absorbed and with social warehouses still not receiving significant inflows, downstream operations improving and cargo pick-up increasing will once again lead to destocking, causing premiums to rebound.
