In May, Shanghai spot copper premiums jumped initially and then pulled back, briefly surpassing 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 above 500 yuan/mt. After the contract rollover, the price spread between futures contracts naturally shifted to a premium against the SHFE copper 2506 contract, resulting in a brief period of high premiums. As copper prices remained elevated post-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 volume of warrants stored at C.Steinweg's Waigaoqiao warehouse, suppliers were further incentivized to sell, while downstream buyers engaged in bargain down purchasing prices, dragging down premiums.
As month-end approached, the previously cancelled LME Asia warrant cargoes began flowing into China. Bonded zone cargoes were also fully imported by importers for downstream long-term contract deliveries. Consequently, month-end spot premiums fell to around 100 yuan/mt.
Looking ahead to June, although some smelters will still undergo maintenance, production in June is expected to remain stable without significant declines, ensuring normal domestic supply. Meanwhile, it is noteworthy that a substantial number of LME warrants are still being cancelled. In addition to Asia, the volume of cancelled warrants in Europe has surged. In June, overseas imports may include not only cargoes from LME Asia but also a significant amount of Russian copper cathode from Europe. This will increase the downward pressure on spot premiums. However, attention should be paid to smelters' export activities when import losses continue to widen.
In terms of consumption, there is still a lag in the transmission of terminal orders to the upstream sector. Orders for primary processed materials are average. Given the weak demand, it is difficult for spot premiums to improve, and the near-month structure is expected to widen significantly.
