BLBG: Copper Premiums in China Slump by a Third as Two-Year High Deters Buyers
Copper premiums in China, the world’s largest consumer, dropped by a third in the past week as the metal’s rally to the costliest in more than 27 months discouraged purchases by end-users.
Premiums paid by Chinese importers over the London Metal Exchange cash price dropped to around $80 a metric ton on a cost, insurance and freight basis to Shanghai, said Zhu Shiwei, an analyst at Yong’an Futures Co. That’s about 33 percent lower than $120 a ton quoted at the beginning of the month, he said.
Copper in Shanghai gained 7.2 percent this month, tracking a rally in London as investors sought alternatives to a declining dollar. The drop in premiums reflects a market that has enough supply to meet the current demand, said Fu Bin, a Shenzhen-based analyst at Jinrui Futures Co.
“Chinese consumers are very price sensitive so once the price jumps, physical buying dries up and it’s really just hand- to-mouth demand as they run down their own stockpiles,” said Li Ye, an analyst at Minmetals Starfutures Co.
Shanghai’s copper market has been in a so-called contango, where the metal for immediate delivery is cheaper than supplies with later dates, suggesting ample short-term availability, in the past month. Spot copper in Changjiang, Shanghai’s biggest cash market, traded at a discount of around 1,070 yuan a ton to futures today, compared with a premium of more than 1,000 yuan in July, according to Bloomberg calculations.
“We have now moved way beyond the fundamentals” as the rally has been driven by “a kind of manic momentum,” said Zhu. “Any bullishness from supply-side concerns or expectations for strong demand has already been priced into the market.”
Copper for three-month delivery on the London Metal Exchange declined 0.7 percent to $8,462 a ton by 3:51 p.m. in Singapore, after advancing as much as 0.4 percent to $8,554 a ton earlier, the highest price since July 2008. Futures on the Shanghai Futures Exchange ended the day little changed at 64,920 yuan ($9,742) a ton. Shanghai copper prices include a 17 percent value-added tax and import fees. Immediate-delivery copper in Changjiang traded around 63,850 yuan today.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net
