Backwardation narrows on a month-to-month basis, coupled with reduced low-priced supply, spot premiums may stop falling and stabilize [SMM Shanghai spot copper]

SMM, October 13:

Today, SMM #1 copper cathode spot prices against the SHFE copper 2610 contract were quoted at a discount of 60 yuan/mt to a premium of 100 yuan/mt, with an average premium of 20 yuan/mt, down 140 yuan/mt from the previous trading day. In early trading, the SHFE copper 2610 contract opened lower with a gap and then swung wildly, bottoming out during the session. It opened near 111,450 yuan/mt, then dipped to around 111,390 yuan/mt before quickly rebounding to near 111,610 yuan/mt. Copper prices then fell under pressure again, hitting a low of around 111,270 yuan/mt during the session. After consolidating at lows, prices gradually rebounded, with a rapid rally near midday, closing the morning session at 111,500 yuan/mt. The backwardation between the front and next month contracts was between 710 yuan/mt and 820 yuan/mt, and the import profit margin for SHFE copper against the 2610 contract was between a loss of 1,260 yuan/mt and a loss of 1,110 yuan/mt.

During the day, the selling sentiment for copper cathode in the Shanghai region was 3.57, up 0.07 MoM, and the procurement sentiment was 2.91, up 0.06 MoM. Historical data can be queried in the database. At the start of early trading, suppliers initially quoted Lufang and JCC at a premium of 120 yuan/mt, while Yuguang, Tiefeng, Zhongjin, and Dajiang PC were quoted at premiums of 20-80 yuan/mt. Suppliers then quickly lowered their quotes, with Lufang and others quoted at a premium of 50 yuan/mt, and Zhongtiaoshan, Tiefeng, Zhongjin, and Yuguang quoted at a discount of 50 yuan/mt to parity. Non-registered copper brands such as Lamikal, TFM, and KFM were quoted at discounts of 220-180 yuan/mt. In the second session, suppliers further lowered their quotes, with Xikuang and others trading at discounts of 100-80 yuan/mt, Jinchuan plate and Guixi quoted at premiums of 50-60 yuan/mt, and non-registered copper quoted at discounts of 280-220 yuan/mt.

Looking ahead to tomorrow, as delivery approaches, the backwardation between the front and next month SHFE copper contracts has shown signs of marginal convergence, but overall remains at a relatively high level, and suppliers' willingness to sell persists. After spot premiums quickly pulled back to near parity during the day, some suppliers' willingness to continue selling at low prices has diminished, and sentiment to hold prices firm and hold back from selling is gradually emerging. The further downside for spot premiums may be limited. As of the midday close, open interest in the SHFE copper 2610 contract was about 20,000 lots, and SHFE warrants stood at about 9,000 mt. As delivery approaches, attention should still be paid to market volatility risks arising from changes in nearby-month open interest, warrant volumes, and the spread between the front and next month contracts. Demand side, downstream processing enterprises are currently mainly adopting a wait-and-see approach and making just-in-time procurement, with limited willingness to chase higher prices. Overall, if the backwardation between the front and next month contracts continues to converge, pressure on the spot market is expected to ease. Spot premiums in the Shanghai region are expected to stop falling and stabilize tomorrow, with a possibility of a slight rebound.