China’s Copper Prices Enter Slight Backwardation Amid Strong Demand
Copper prices in Shanghai have entered slight backwardation, driven by strong demand and expectations of U.S. tariffs. Recent data indicates increased exports and declining stock levels, contributing to the pricing dynamics in the copper market.
Copper prices in Shanghai have exhibited a slight backwardation, fueled by expectations of strong demand in China. The anticipation of tariffs on copper by President Donald Trump has incentivized suppliers to redirect refined copper to the United States, taking advantage of price disparities. The front-month April copper contract on the Shanghai Futures Exchange concluded at 81,900 yuan ($11,277.88) per metric ton, reflecting an increase of 0.75% compared to the September contract.
This backwardation, characterized by the near-month contract surpassing long-term pricing, suggests that concerns over current supply remain moderate. According to a copper trader, the minor backwardation arises primarily from favorable copper demand in China. Furthermore, additional influences include elevated copper exports from China and maintenance activities at copper smelters during March due to a shortfall in copper concentrate, a vital raw material for refined copper.
China’s customs data highlights a significant increase of 119% in refined copper exports for the initial two months of this year. A fourth trader noted that many copper shipments have been directed to the United States, attracted by more lucrative pricing, resulting in diminished imports for China. Additionally, China’s shipments expanded in early 2023, coupled with a decline in copper stock levels.
The Yangshan premium, an important metric of China’s demand for imported copper, surged by 114% from early March, reaching $75 per ton, marking the highest figure since January 20. In parallel, refined copper stocks decreased by 4% week-on-week to 333,600 tons as of March 24, indicating a year-on-year decline of 13.9%, as reported by Shanghai Metals Market. One trader warned of a potential risk of a short-squeeze in the Shanghai market going forward.
Sources provided their insights under conditions of anonymity, as they are not permitted to speak for publication.
In summary, the recent slight backwardation in Shanghai copper prices indicates strong domestic demand and shifts in trading patterns due to anticipated U.S. tariffs. This phenomenon, along with increased exports and diminishing stock levels, reflects the evolving dynamics within the global copper market. Traders remain cautious about potential supply risks in the near future.
Original Source: www.tradingview.com
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