Tight available supply drives premiums sharply higher; caution needed over weakening downstream acceptance amid high prices and high backwardation [SMM Shanghai Spot Copper]

SMM, September 22:

Today, SMM #1 copper cathode spot prices against the SHFE copper 2610 contract were quoted at premiums of 1,150-1,600 yuan/mt, with an average of 1,375 yuan/mt, up 550 yuan/mt from the previous trading day. In early trading, the SHFE copper 2610 contract opened higher with a gap and then consolidated upward. After the open, prices pulled back slightly, dipping to around 110,820 yuan/mt, before gradually rebounding and climbing above 111,000 yuan/mt. Copper prices continued to rise during the session, breaking through 111,500 yuan/mt and reaching a high of around 111,750 yuan/mt, then pulled back slightly from highs, closing the morning session at 111,570 yuan/mt. The backwardation between the front and next month contracts stood at 430-610 yuan/mt, and the import profit margin for SHFE copper against the 2609 contract ranged from a loss of 1,460 yuan/mt to a loss of 1,200 yuan/mt.

During the day, sales sentiment for copper cathode in the Shanghai region was 3.65, up 0.20 MoM, while procurement sentiment was 3.75, up 0.08 MoM. Historical data can be queried in the database. At the start of early trading, suppliers initially quoted Dajiang HS, Zhongjin, and Zhongtiaoshan high-purity at premiums of 1,000 yuan/mt, and JCC at a premium of 1,200 yuan/mt. After low-priced cargoes were quickly traded, suppliers raised their quotes accordingly, with JCC, Lufang, and Xiangguang quoted at premiums of 1,450-1,500 yuan/mt, Zijin and Jinguan at premiums of 1,200-1,300 yuan/mt, and NOR at premiums of 900-950 yuan/mt. In the second session, suppliers continued to raise quotes, with Tiefeng and Dajiang HS quoted at premiums of 1,400-1,450 yuan/mt, while quotes for non-registered copper were hard to find.

Looking ahead to tomorrow, available supply in the Shanghai region is expected to remain tight, and with some downstream processing enterprises still having pre-holiday stockpiling demand, spot premiums are likely to remain well supported. Although some imported cargoes locked in at favorable SHFE/LME price ratios after the import window opened earlier are gradually arriving, overall volumes are limited, and their near-term contribution to market supply is expected to be relatively modest, making it difficult to significantly ease the current supply tightness. As such, spot premiums are expected to have further upside potential tomorrow. However, copper prices are already at elevated levels, the backwardation between the front and next month contracts has widened, and spot premiums have climbed rapidly, significantly increasing procurement costs for downstream and end-user enterprises. Their acceptance of high premiums may gradually decline. If premiums continue to rise rapidly, some downstream buyers may turn to the sidelines and reduce just-in-time procurement, leading to a pullback in market trading activity. Market participants are advised to watch for negative feedback risks on the demand side amid the combined pressure of high copper prices, high backwardation, and high premiums.