It has been observed that despite the significant losses in the import window recently, domestic smelters have already planned for exports. However, LME copper inventories are still being rapidly destocked, with the most significant reduction occurring in Asian warrants. Given the substantial volume of both imports and exports, is the domestic spot market experiencing tight or loose supply?
As shown in the figure above, LME copper inventories are being destocked at an accelerated pace. While this is partly due to the US siphoning off copper cathode, during the brief period when the SHFE copper import window against LME copper was profitable, traders significantly canceled LME warrants and continued to ship copper cathode to China. Subsequently, copper prices surged briefly, supported by macroeconomic factors and the widening backwardation in both LME and SHFE copper. As the import price ratio weakened, smelters began to explore export opportunities. According to SMM estimates, copper cathode exports in June may reach 70,000 mt.
Currently, copper prices are fluctuating rangebound, and the operating rate of copper rod production has not shown significant improvement. However, social inventory continues to destock, indicating resilient downstream consumption. Most downstream consumers, considering that the majority of exports from smelters and imported copper are non-registered copper cathode from Russia and Africa, anticipate tight supply of the main circulating and deliverable copper cathode in the market. Therefore, when spot premiums decline, downstream consumers tend to purchase copper cathode at lower prices.
Following the contract rollover and delivery of SHFE copper 2506, apart from the warrants matched for delivery, thousands of warrants will be released in advance. Additionally, there have been concentrated arrivals of Russian copper cathode recently, so the overall market supply is not tight. After entering the SHFE copper 2507 contract period, spot suppliers will start quoting at premiums of 200-300 yuan/mt. However, sustained import pressure makes it difficult for suppliers to achieve high premiums. It is expected that spot premiums will be quoted high but sold low in the future, and market supply will remain relatively abundant.
