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In May, Shanghai spot copper premiums jumped initially and then pulled back, briefly touching premiums above 400 yuan/mt before quickly retreating. Before the contract rollover of SHFE copper 2505, due to the mismatch between high open interest and low warrants for the current month, the backwardation structure of the near-month contracts continued to rise to above 500 yuan/mt. After the rollover, the price spread between futures contracts naturally shifted to premiums against the SHFE copper 2506 contract, resulting in a brief period of high premiums. As copper prices remained high after the rollover, the sentiment for downstream purchases weakened. Coupled with arbitrageurs closing out their profitable positions from the previous structure, spot suppliers actively sold off their inventory, causing spot premiums to decline. Moreover, with a large number of warrants located in the C.Steinweg Waigaoqiao warehouse, suppliers were even more eager to sell, while downstream buyers engaged in bargain down purchasing prices, dragging down premiums.
As the month-end approached, the previously cancelled LME Asia warrants began to flow into China. Bonded area inventory was also pulled into the country by importers for downstream long-term contract deliveries. Consequently, spot premiums fell to around 100 yuan/mt by month-end.
Looking ahead to June, although some smelters will still undergo maintenance, production is expected to remain stable with no significant decline, and domestic supply will be normal. Meanwhile, it is important to note that a large number of LME warrants are still being cancelled. In addition to Asia, the volume of cancelled warrants in Europe has increased significantly. In June, in addition to potential imports from LME Asia, there may also be substantial imports of Russian copper cathode from Europe. This will increase the downward pressure on spot premiums. However, it is necessary to monitor smelter export activities when import losses continue to widen.
In terms of consumption, there is still a gap between end-user orders and upstream transmission. Orders for primary processed materials are average. Given the weak demand, it is difficult for spot premiums to improve, and the near-month structure will also widen significantly. Overall, spot premiums are unlikely to show strong performance in June. However, as the trading days for the SHFE copper 2507 contract approach in the second half of the month, the price spread between futures contracts will once again be transferred to spot premiums. It is expected that spot premiums will still reach 400-500 yuan/mt. If smelter export activities become more pronounced, it is expected that high spot premiums will persist for a few days after the contract rollover.
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