1.Chinese Copper Imports Reach a Monthly High in November 2022 as the Import Window is Wide Open in October

According to the customs, China imported 358,300 mt of copper cathode in November 2022, up 43.95% on the month and 10.07% on the year, hitting a new monthly high. The imports totalled 3.32 million mt from January to November, up 9.36% YoY.
According to the SMM data, the import window remained open from late September to mid-to-late October 2022. After the National Day holiday, the spread between the SHFE front-month and next-month contracts soared to around 2,000 yuan/mt in the backwardation structure because of the short squeeze, and the import profits once reached above 1,500 yuan/mt, which stimulated the import declaration, and at the same time boosted the imported copper premiums to hit a new high amid the low inventory.
The imports from Russia reached approximately 41,000 mt, up 347.7% month-on-month and 24.87% year-on-year, accounting for 11.5% of the total imports in a single month, up 7.8 percentage points. LME once considered prohibiting Russian metal delivery, while Russian copper accounted for a relatively high proportion of LME copper stocks, mainly distributed in delivery warehouses in Hamburg (Germany), Rotterdam (Netherlands) and Kaohsiung city (Taiwan, China). As of October 19, 2022, the copper stocks in the above-mentioned three warehouses stood at 61,000 mt, accounting for about 44% of the total LME copper inventories. Under normal circumstances, the main destinations of LME copper are China, the Netherlands, Germany, etc. However, some Russian copper was shipped to China because of the intensified relationship between European countries and Russia at that time, tightening the copper supply in Europe.
SMM believes that in December 2022, China’s imports of copper will drop to around 320,000 mt. Since November, the import window has rarely been opened. The SHFE/LME price ratio dropped greatly, and the export window once opened, giving some smelters chances to export. With the closing of the import window, the import market remains sluggish approaching the year-end, and the traders mainly trade long-term orders. In addition, the efficiency of import customs clearance is reduced near the end of the year, which is aggravated by the COVID-19 outbreaks. Judging from the copper supply-demand balance in December, the supply is still relatively tight, and the domestic inventory is hovering at a low level, pushing up the spot premiums. But the operating rates of the processing companies have not declined significantly, hence the spread between the SHFE 2301 and 2302 copper contracts may be maintained at a small backwardation structure.

 

 

2. Copper Inventory in Major Chinese Markets Dips 12,400 mt over the Weekend

As of Monday December 19, SMM copper inventory across major Chinese markets stood at 81,900 mt, down 12,400 mt from last Friday and 4,800 mt from the same period last year when the data was 86,700 mt, which is a new YoY low since November 4, 2022, and the lowest reading in the same period in the past four years.  The inventory in most regions decreased except that in Guangdong. In detail, the inventory in Shanghai fell 11,400 mt to 52,000 mt, the inventory in Jiangsu dipped 1,000 mt to 18,000 mt, the inventory in Guangdong added 100 mt to 6,100 mt, the inventory in Chengdu dropped 100 mt to 200 mt, while the inventory in other regions remained unchanged.

At the weekend, due to the fewer arrivals of imported copper and active downstream restocking after the copper prices dropped, the inventory in east China declined significantly. In Guangdong, the inventory grew slightly owing to the increase in arrivals of domestic copper and the poor consumption. Since last week, the operating rates of downstream factories have been affected by COVID-19 outbreaks, which can be reflected in the low shipments flowing out of the warehouses in Guangdong.

Looking forward, according to SMM research, the arrivals of imported copper will change little WoW this week. In late December, downstream companies will increase their restocking. SMM believes that the inventory this week will fall if the subsequent arrivals cannot grow.

 

 

 

3. SMM Analysis of Reasons for Three Consecutive Weeks of Decline in Copper Concentrate TCs

The weekly SMM Imported Copper Concentrate Index stood at $87.67/mt as of December 16, marking three consecutive weeks of fall from $91.08/mt on November 15. Tight supply in the spot market contributed to the decline. 

The TCs of clean copper concentrates signed between smelters and traders under long-term orders in 2023 were mostly at discounts of $3-5/mt against next year’s benchmark TC ($88/mt), thus traders preferred to sell next year. 

The recent sharp increase in the production and operation risks of some mines hindered the production and transportation of some major mines, further exacerbating the supply tightness of spot copper concentrates. For example, members of the Peruvian community once again blocked an important road near Cusco city, Canchis province, and other roads in Canchis were also blocked by protesters. Therefore, the storage space of MMG's Las Bambas copper mine is about to be full, greatly increasing the possibility of production reduction or halts. It was reported that the current copper concentrate inventory of Las Bambas has reached about 500,000 mt (about 125,000 mt in Cu content), and Las Bambas has taken emergency measures to allow copper concentrate production to continue until the end of the year. First Quantum failed to reach an agreement with the Panamanian government on the operation of the Cobre Panama copper mine due to First Quantum's "unreasonable demands" and the Panamanian government warned that it would take "backup measures" to ensure the operation of the mine.

4.Spot Premiums Stay Firm with the Improvement of Downstream Companies’ Buying Interest after the Delivery of SHFE 2212 copper

On December 19, spot premiums of #1 copper cathode in the Shanghai market moved between 440-540 yuan/mt over the SHFE 2301 copper contract, and the average premium was 490 yuan/mt, up 120 yuan/mt from December 16. The standard-quality copper was traded at 65,820-66,190 yuan/mt and traded prices of high-quality copper were 65,900-66,240 yuan/mt. The SHFE 2301 copper once edged higher to 65,950 yuan/mt amid the shorts’ position cuts. Afterwards, the prices began to fall with the longs reducing their positions. The prices then bounced back after falling to 65,350 yuan/mt near 11: 00 a. m. (Beijing time), closing at 65,440 yuan/mt. The spread between the SHFE 2301 and 2302 copper contracts hovered around -20-30 yuan/mt narrowly.

Spot premiums stayed firm today. The downstream companies’ buying interest improved after the delivery of the SHFE 2212 copper contract. In the early market, quotes of mainstream standard-quality copper offered by cargo holders were 450-470 yuan/mt. Supply of high-quality copper was scarce and only a small amount of CCC-P flowed in the market, hence the spread between the high-quality copper and standard-quality copper reached nearly 100 yuan/mt. Quotes of hydro-copper were around 350 yuan/mt, and those of some low-quality copper such as goods from Bulgaria and Indonesia stood at 400-410 yuan/mt. Downstream companies maintained high buying interest from 9:30 a. m. to 10:00 a. m. The futures prices dropped, boosting the spot purchases. Some holders seized the chance and raised the quotes of standard-quality copper to 460-480 yuan/mt, and the mainstream standard-quality copper was mostly traded at 450-470 yuan/mt. After 10:00 a. m., the spot transactions became slack. A small number of holders lowered the quotes to 440 yuan/mt to clinch a deal, and the market witnessed some transactions.

In intraday trading, spot trading picked up as the rise in futures prices did not surpass the downstream companies’ expectations. According to SMM statistics, the inventory in Shanghai dipped 10,000 mt at the weekend, tightening the spot supply, which enabled the spot traders to hold their prices firm. The SHFE/LME copper price ratio has rebounded. The market also shall pay attention to the impact of COVID-19 outbreaks on the operation of ports and warehouses. It remains to be seen whether the imported goods can flow into the domestic market smoothly. The premiums would hardly fall if no more imported goods flowed into the market.

 

5. Spot Copper Concentrate TCs are Under Pressure amid the Shrinking Supply

As of Friday December 16, the SMM Imported Copper Concentrate Index (weekly) stood at $87.67/mt, $0.83/mt lower than the previous week. Spot copper concentrate trading picked up greatly last week. The traded TCs of clean copper concentrates between mines and smelters were $84-85/mt, those between mines and traders stood at $81-82/mt, and those between traders and smelters moved between $87-89/mt. The goods were scheduled to be shipped in the first quarter of 2023. According to SMM survey, the tight supply of spot copper concentrate in the market contributed to the decline in the SMM Imported Copper Concentrate Index for three consecutive weeks. Higher TCs offered by concentrate traders did not benefit themselves. SMM survey showed that the TCs between smelters and traders were benchmark less $3-5/mt. In such a context, traders were more willing to delay the settlement of spot positions and combine them into the long-term orders in early 2023. Recently, mounting risks facing the production and transportation of some major mines in South America further tightened the spot copper concentrate supply.

On the news front, mine production in South America was disturbed again last week.  According to foreign media, a Peruvian community once again blocked an important road near Cusco, Canchis Province, and other roads in Canchis were also hindered by protesters. Therefore, the warehousing capacity of the Las Bambas copper mine was about to reach its limit, which increased the probability of the mine's production reduction or suspension. The in-plant copper concentrate inventory has ballooned to about 500,000 mt (about 125,000 mt in metal content), and Las Bambas has taken emergency measures to maintain its production until the end of the year. First Quantum failed to reach an agreement with the Panamanian government on the operation of the Cobre Panama copper mine due to First Quantum's "unreasonable demands". The Panamanian government warned that it would take "backup measures" to ensure the normal operation of the mine.

According to the SMM data, the port inventory of copper concentrate last Friday stood at 746,000 mt in physical content, down 13,000 mt WoW. As of last Friday, Antofagasta and Anglo American still did not follow the previously set benchmark TCs for copper concentrate in 2023 of $88/mt. The pricing coefficient of domestic spot Cu 20% copper concentrate stood at 88.5-89.5% on a delivery-to-factory basis.