The Cu SHFE/LME ratio may continue to improve in November. [SMM Analysis]

From the perspective of copper cathode production, China's SMM copper cathode output in October was 1.0916 million tons, a decrease of 29,400 tons month-on-month, slightly below the expected production level. It is estimated that China's SMM copper cathode output in November will be 1.0876 million tons, a further decrease of 4,000 tons month-on-month. The marginal weakening of China's copper cathode production in November, coupled with pessimistic arrivals at social warehouses, indicates an unfavorable outlook for inventory replenishment.

From the perspective of import profit and loss, the export window briefly opened significantly in mid-October. However, for most of the time after mid-October, it remained slightly open. According to SMM, many market participants have chosen various methods to lock in price ratios for exporting copper cathode. Some traders have opted for re-export trade, shipping certain brands of copper cathode from South Korea, Africa, and South America to the United States. There are also smelters choosing to export copper cathode to LME Asian warehouses or directly ship to downstream factories in Southeast Asia. In total, approximately 40,000 tons of copper cathode were shipped to LME Asian warehouses, 40,000 tons were re-exported to the United States, and less than 20,000 tons were shipped to downstream enterprises in Southeast Asia. Although production accidents at Indonesian mines and the shutdown of Indonesian smelters at the end of October created a supply gap in the Southeast Asian copper cathode market, potentially reducing LME copper inventories and once fueling market speculation about a convergence of the contango structure, the brief significant opening of the export window is expected to lead to inventory accumulation in LME warehouses in early November. It is not difficult to foresee a convergence of the contango structure in SHFE copper contracts, a strengthening of the backwardation expectation in LME copper contracts, and a potential improvement in the price ratio.

In terms of inventory, copper prices repeatedly reached highs in October. Although downstream copper cathode users, affected by high copper prices, primarily replenished inventories for essential production needs, this still reflects the potential and resilience of downstream consumption in China. After this year's National Day holiday, the seasonal accumulation of social inventories was lower than in previous years during the same period. Moreover, after copper prices fell to around 84,000 yuan/ton in mid-October and 86,000 yuan/ton in late October, downstream purchasing willingness became relatively active. As a result, the accumulation of social inventories of copper cathode in China fell short of expectations. Combined with the expected month-on-month decrease in China's copper cathode production in November, the marginal decline in social inventory accumulation of copper cathode in China may lead to a further convergence of the contango structure, with nearby contracts potentially flattening.