Tight Market Supply and Higher SHFE/LME Price Ratio Drive Rapid Rise in Premiums [SMM Yangshan Copper Weekly Review]

This week (July 6 – July 9), the weekly average price range for Yangshan copper premium B/L transactions was $73–$87/mt, QP August, with an average price of $80/mt; the weekly average price range for warrant transactions was $74–$85/mt, QP August, with an average price of $80/mt; and EQ copper CIF B/L was at $43–$54/mt, QP August, with an average price of $49/mt. As of July 9, the forex-adjusted SHFE/LME copper price ratio for the SHFE copper 2607 contract against LME copper was 1.1406, with an import profit near 200.22 yuan/mt, compared to a loss of 163.35 yuan/mt in the previous period, with the arbitrage window open. As of Thursday, the front-end contango structure of LME copper widened, with the carry spread between the July date and August date at −$42.98/mt. Currently, mainstream offers for high-quality ER copper warrants are around $90–$100/mt, and mainstream offers for B/L are around $90–$100/mt; CIF B/L EQ copper traded around $50–$60/mt.

This week, Yangshan copper premiums showed a rapid uptrend. The logic remained: low port arrivals from July to August led to persistently tight supply, giving suppliers strong sentiment to hold back from selling and hold prices firm, significantly lifting market offers and transaction centers. On the SHFE/LME price ratio side, the import price ratio swung from a loss to a profit, and downstream restocking actions occurred due to a typhoon. However, the rapid rise in premiums has caused current divergence between upstream and downstream players. Overall, limited available cargo, tight supply, and an open arbitrage window were the core drivers of this round's premium rise.

According to the SMM survey, as of Thursday this week (July 9), China's bonded zone copper inventory decreased by about 4,400 mt MoM from the previous period (July 2) to 35,300 mt. Inventory in the Shanghai bonded zone was down 3,900 mt MoM to 31,900 mt, and in the Guangdong bonded zone, it was down 500 mt MoM to 3,400 mt. Bonded zone inventory destocked for a third consecutive week, consistent with shrinking port arrivals and tightening available cargo; the destocking pace widened from last week (a 1,300 mt decline), mainly due to low restocking into the bonded zone.

Looking ahead, the pattern of tight arrivals from July to August continues to materialize, and supply-side support for premiums is likely to persist. Coupled with a rising import price ratio and a far-end shift to a backwardation structure, this is expected to continue giving suppliers confidence to hold prices firm. However, attention should be paid to whether current downstream actual consumption demand can support the sustained rise in premiums.