Why Has the Yangshan Copper Premium Not Improved Despite Continuous Drop of Domestic Copper Social Inventory? [SMM Analysis]

According to SMM data, domestic copper cathode social inventory has been dropping for four consecutive weeks, but the Yangshan copper premium has remained rangebound without significant improvement. What are the reasons behind this?

From the perspective of import profit and loss, the SHFE/LME price ratio in November was moderate, and the import window frequently opened. However, traders in the imported copper market in the Shanghai bonded zone indicated that downstream purchase willingness was not high, and there was a significant divergence in the psychological price levels between buyers and sellers, resulting in limited direct trading volume in the imported copper market. SMM understands that the main reasons for this situation include the following:

1. As the year-end approaches, many port policy subsidies have been exhausted, and some traders' import data have nearly met the targets, leading to a significant decline in financing procurement demand.

2. Currently, it is the time for long-term contract negotiations, and many traders are busy with negotiations. Coupled with the mediocre performance of the foreign trade market, traders' trading enthusiasm is low, and many enterprises have entered a "closing" state.

3. Domestic copper cathode social inventory has been continuously decreasing amid moderate consumption and the untimely arrival of domestic copper. Many suppliers in the imported copper market in the Shanghai bonded zone indicated that instead of selling at low prices in the foreign trade market, it is more profitable to lock in prices directly for imports.

From the perspective of domestic trade market consumption, mid-November saw a sharp drop in copper prices, leading to an increase in downstream procurement demand. Additionally, with the cancellation of the copper semis export tax rebate policy, many enterprises rushed to arrange order exports before December 1, resulting in moderate overall market consumption demand. The arrival volume of domestic copper was not high, but a large amount of imported copper arrived, providing timely supplementation for the domestic copper cathode supply. The spot premiums in the Shanghai region did not show a significant increase despite moderate consumption and considerable destocking of copper cathode.

In summary, due to factors such as reduced import subsidies in November, the demand for foreign trade copper procurement decreased, and traders' activity levels declined. Furthermore, although copper cathode consumption was relatively good in late November, many traders in the imported copper market in the Shanghai bonded zone locked in prices directly for imports, providing timely supplementation for domestic trade supply. The total supply of domestic and imported copper was basically balanced with consumption demand. Therefore, despite the continuous decline in domestic copper cathode social inventory, the Yangshan copper premium did not show a significant increase.