Copper prices in Shanghai have entered slight backwardation due to strong demand and potential U.S. tariffs on copper. The front-month April contract closed at 81,900 yuan ($11,277.88), reflecting a 0.75% increase. Factors include rising exports and maintenance issues faced by smelters. Stocks of refined copper are down, indicating robust demand and potential future supply constraints.

Copper prices in Shanghai have recently transitioned into slight backwardation due to anticipated strong demand from China. This shift is influenced by expectations that President Donald Trump may impose tariffs on copper, enticing suppliers to target the United States for higher profits. As a result, the front-month April copper contract on the Shanghai Futures Exchange closed at 81,900 yuan ($11,277.88) per metric ton, marking a 0.75% increase compared to the September contract.

Backwardation is characterized by higher prices for near-month contracts relative to longer-term ones, highlighting concerns regarding current supply levels. “The current backwardation is minor, meaning it’s not acute supply concern. The backwardation is there because current copper demand is pretty good in China,” a copper trader stated.

Several traders report that this pricing dynamic is supported by an increase in refined copper exports from China and scheduled maintenance at smelting facilities due to a shortage of copper concentrate, an essential raw material. Notably, customs data reveals a remarkable 119% year-on-year growth in refined copper exports during the first two months of the year. “A lot of copper has flowed to the United States, enticed by higher prices there, resulting in fewer imports; China also shipped more cargoes in the first two months of the year, and stocks continued to fall,” expressed a fourth trader.

The Yangshan premium, a key measure of China’s demand for imported copper, surged by 114% from early March, reaching $75 per ton, the highest level since January 20, according to LSEG data. Concurrently, refined copper stocks experienced a 4% decline on the week, totaling 333,600 tons by March 24, which is a 13.9% decrease from the previous year, as per a report from consultancy Shanghai Metals Market.

“There might be risk of short-squeeze in the Shanghai exchange later,” added a third trader. The identity of the sources has been withheld as they are not authorized to provide public statements.

In summary, China’s copper market has experienced a shift into slight backwardation, driven by strong domestic demand and potential tariff impacts on exports. While backwardation suggests some supply concerns, it remains minor. Furthermore, significant increases in refined copper exports, changes in smelter operations, and a drop in stock levels contribute to the current pricing dynamics. The outlook suggests possible future risks related to supply squeezing in the Shanghai exchange.

Original Source: www.kitco.com

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