1.Copper Tube Imports and Exports in April Continue to Grow YoY

According to customs data, in April 2024, copper tube imports were 1,892.8 mt, down 0.5% MoM, up 15.9% YoY; from January to April, cumulative imports were 7,255.9 mt, up 19.3% YoY. In March, copper tube exports were 30,618.3 mt, up 5.3% MoM, up 4.5% YoY; from January to April, cumulative exports were 118,391.2 mt, up 7.9% YoY.

April copper tube import and export data continued to show a YoY growth trend, with export volumes again surpassing 30,000 mt. After the surge in copper prices in mid-March, the price spread between SHFE and LME copper expanded and import losses widened. Meanwhile, export opportunities arose. Export volumes in April grew significantly MoM. On the import side, although there was YoY growth in April, imports declined MoM. Besides import losses, high copper prices and reduced domestic sales plans by air conditioner manufacturers also led to a MoM decrease in imports. As copper prices continued to rise in April and May, it is expected that copper tube exports will still have room for MoM growth in May, while imports will decline.
By country, the share of China's copper tube imports from various countries in April showed significant differences compared to March. Thailand's share increased from 30% in March to 49% in April, while South Korea's share decreased from 18% in March to 4% in April. There were no significant changes in the share of China's copper tube exports by country in April, with Thailand, the US, and Taiwan still in the top three.
Copper prices surged in May, breaking historical highs, and the import window completely closed, impacting copper tube import volumes. Meanwhile,  expects a slight decline in the operating rate of Chinese copper tube manufacturers in May. China's copper tube import volumes may continue to decline MoM, but exports are expected to remain strong due to robust overseas demand.

2.The US Neutral Rate May Remain for a Long Time, Copper Prices Under Pressure
Market: Overnight, LME copper opened at $10,605/mt, initially reaching a high of $10,605/mt before trending downward, touching a low of $10,363/mt at the end of the trading session, and finally closing at $10,396/mt, with a decline of 3.94%. Trading volume reached 36,000 lots, and open interest was 344,000 lots. The most-traded SHFE copper contract opened at 84,500 yuan/mt, initially reaching a high of 85,080 yuan/mt before trending downward, touching a low of 83,880 yuan/mt during the session, and closing at 84,260 yuan/mt, with a decline of 2.79%. Trading volume reached 131,000 lots, and open interest was 215,000 lots.
News: (1) US Fed May Meeting Minutes: Several officials are willing to tighten policy further if necessary. The neutral rate may be maintained longer than previously expected. Officials discussed the need to keep rates unchanged for a longer period or to cut rates if the labour market weakens. Some officials noted the risk of overly loose financial conditions. After the minutes were released, traders reduced bets on multiple rate cuts by the Fed this year. (2) According to SMM, from Monday to Wednesday May 22 this week, LME Asian warehouse copper cathode stocks increased by a total of 7,500 mt, with Busan warehouse increasing by 2,000 mt and Kaohsiung warehouse increasing by 5,500 mt, mainly due to previous deliveries from domestic smelters. A large amount of domestic copper cathode is expected to be delivered in the future.
Spot: (1) Shanghai: On May 22, 1# spot copper cathode against the 2406 contract was quoted at a discount of 350-300 yuan/mt, with an average discount of 325 yuan/mt, down 15 yuan/mt from the previous trading day. Yesterday morning, copper prices continued to retreat, and some downstream buyers chose to restock at lower prices to meet the demand gap suppressed by previous high copper prices. Although spot premiums saw a slight pullback, they remained low. The market is currently dominated by a wait-and-see sentiment. If copper prices continue to fall today, premiums are expected to rise slightly.
(2) Guangdong: On May 22, 1# spot copper cathode against the current month contract was quoted at a discount of 460-400 yuan/mt, with an average discount of 430 yuan/mt, down 40 yuan/mt from the previous trading day. Overall, both inventory and copper prices fell, but downstream buyers did not restock, and spot premiums continued to decline.
(3) Imported Copper: On May 22, import premiums were -$30 to -$10/mt, QP June, with an average premium down $15/mt from the previous trading day; bill of lading import premiums were -$25 to -$10/mt, QP June, with an average price down $2.5/mt from the previous trading day; EQ copper (CIF bill of lading) was -$62 to -$52/mt, QP June, with an average price down $10/mt from the previous trading day, with quotes referencing late May and early June port arrivals. Yesterday, general pyrometallurgy warrants were found trading around -$25/mt. Yesterday, the import profits against the June contract was around -1,446 yuan/mt, with LME copper 3M-June at C75.35/mt, and the June-July spread widening to around C41/mt. The market only had some demand for ETA early June bills of lading, but suitable sources were limited, resulting in sluggish transactions.
(4) Secondary Copper: On May 22, copper scrap prices fell by 200 yuan/mt. Guangdong bare bright copper prices were 76,300-76,500 yuan/mt, down 200 yuan/mt from the previous trading day, with the price difference between copper cathode and copper scrap at 4,373 yuan/mt, down 243 yuan/mt from the previous trading day, and the price difference between copper rod made using copper cathode and using copper scrap at 2,170 yuan/mt. According to SMM, the implementation of "reverse invoicing" varies across regions. Copper rod plants using copper scrap implementing "reverse invoicing" lowered their copper scrap procurement prices due to increased tax burdens, while provinces that have not implemented the policy have a price advantage.
(5) Inventory: On May 22, LME copper cathode inventory increased by 2,050 mt to 110,250 mt; SHFE warrant inventory decreased by 120 mt to 224,155 mt.
Prices: On the macro level, the US Fed May meeting minutes showed that several officials are willing to tighten policy further if necessary. The long-term neutral rate may be higher than previously expected, which is bullish for the dollar and bearish for copper prices. Additionally, the arrival of Chinese copper cathode at LME Asian warehouses led some speculative longs to close their positions. On the fundamentals side, copper prices saw a pullback yesterday, with some downstream buyers restocking at lower prices, but many are still waiting for further price drops. Sellers are still waiting for downstream purchases, and according, some smelter inventories have reached warehouse limits. If copper prices continue to fall, the market is expected to see a slight recovery. In terms of prices, suppressed demand is putting upward pressure on copper prices.


3. Arbitrage Space Narrows, When Will COMEX Copper Short Squeeze Sentiment Dissipate?
Last Tuesday (May 14), the COMEX July copper contract experienced a short squeeze, with open interest reaching 177,000 lots. The price surged sharply, peaking at $519.9/lb, nearly hitting a three-year high, and the near-month COMEX contracts shifted to a backwardation structure.
On May 14, COMEX copper inventory fell below 20,000 tons, and the proportion of long positions in COMEX continued to rise. The near-month COMEX copper contract strengthened and shifted to a backwardation structure, leading to a short squeeze risk and pushing COMEX copper prices upward. Meanwhile, the price spread between COMEX and LME copper surged to a historical high, reaching nearly $1,000/mt on the evening of May 15. Historically, the COMEX and LME 0-3 price spread has not exceeded 5%, and since 2009, it has mostly stayed below 2%. On May 15, 2024, the price spread exceeded 10% at its peak, stimulating a large number of speculative arbitrage positions to enter the market.
The main reasons for the squeeze include: ① Sanctions on Russian metals, reducing the available deliverable supply; ② A decrease in the Panama Canal's capacity after Q4 2023, reducing copper cathode shipments from South America to North America, and a significant drop in Chilean production in Q1 2024. This has led to low inventory levels in LME and COMEX warehouses in New Orleans. Prior speculative reverse arbitrage positions placed a large number of short positions on COMEX. Holders of COMEX short positions actively sought copper cathode for delivery to COMEX warehouses, but were limited by brand requirements and shipping space, making it difficult to gather large quantities of copper cathode in the short term. Some short position holders were forced to roll over or cut their positions, causing the near-month COMEX contract to shift to a backwardation structure. According to SMM, previously, large players actively purchased imported brand warrants in the Chinese mainland market, slightly increasing the Yangshan copper warrant premium.
Currently, the LME 0-3 and COMEX price spread has somewhat retreated, closing at around $300/mt as of May 20, still higher than the European comprehensive transportation cost of $150, but lower than the Asian comprehensive transportation cost of $350. The timing of the dissipation of the short squeeze depends on several factors. COMEX warehouses have strict sanctions on Russian copper, and other brands meeting delivery requirements are also limited, making it uncertain whether copper cathode supply can meet delivery needs. Shipping schedules in some regions are tight, and space is limited. For example, the earliest shipping schedule in China is mid-June, with the earliest arrival at COMEX expected in early July. Overall, the risk of a COMEX copper short squeeze remains, with bullish sentiment showing no signs of cooling. Attention should be paid to when copper cathode can arrive at COMEX warehouses, at which point the squeeze sentiment will ease.


4.Strong US Business Activity Drives Copper Prices Down Overnight
Overnight, LME copper opened at $10,330/mt, initially dipped to a low of $10,330/mt, then fluctuated upwards, reaching a high of $10,508/mt during the session, before falling back to close at $10,359/mt, with a decline of 0.36%. Trading volume reached 30,000 lots, and open interest reached 348,000 lots. Overnight, the most-traded SHFE copper contract opened at 83,610 yuan/mt, initially peaked at 84,380 yuan/mt, then fluctuated downwards, reaching a low of 83,450 yuan/mt during the session, before closing at 83,620 yuan/mt, with a decline of 0.39%. Trading volume reached 90,000 lots, and open interest reached 210,000 lots. On the macro front, the preliminary S&P Global Composite PMI for the US in May exceeded expectations, rising to 54.4. Both the manufacturing and services PMI preliminary readings were higher than expected. Strong US business activity reduced the urgency for the US Fed to cut interest rates, leading to a rise in the US dollar index, which negatively impacted copper prices. On the fundamentals side, copper prices saw a significant decline yesterday, increasing market activity. According to SMM, although the price drop led to more market transactions, overall trading volume remained relatively low, with many market participants still on the sidelines. As of Thursday, May 23, copper stocks across national mainstream markets increased by 12,300 mt from Monday to 415,100 mt, 296,700 mt higher YoY. In terms of prices, the high US dollar index, together with weak domestic demand, continued to pressure copper prices.

5.Copper Cathode Imports in April Down MoM, Exports Expected to Surge Amid Worsening Price Ratio
According to data from the General Administration of Customs, China imported a total of 1.1906 million mt of refined copper (copper cathode with a copper content >99.9935% and other unwrought copper cathode) from January to April 2024, up 20.44% YoY. In April, imports were 284,000 mt, down 3.91% MoM but up 17.42% YoY. From January to April, China exported a total of 70,400 mt of refined copper (copper cathode with a copper content >99.9935% and other unwrought copper cathode), down 45.4% YoY. In April, exports were 284,000 mt, up 5.46% MoM but down 8.33% YoY.
In terms of imports, the MoM decline in copper cathode imports was observed. Entering mid-to-late April, the SHFE/LME copper price ratio continued to worsen, leading to a decline in cargo imports. However, some imported cargoes arrived in April due to previous profitable price ratios, resulting in only a slight MoM decrease in overall copper cathode imports. YoY, copper cathode imports in April increased as low-price African copper gradually replaced South American registered copper. Despite the less favorable price ratio compared to last year, domestic traders imported large quantities of EQ copper driven by local government subsidies.
In terms of exports, the export window opened in March, prompting major domestic refineries to plan exports. Copper cathode began leaving China in April and is expected to arrive at LME Asian warehouses in late May.
Looking ahead, the worsening SHFE/LME copper price ratio in April, together with weak domestic market demand and low willingness to purchase, has raised concerns among sellers about potential warehouse congestion. This has significantly reduced traders' willingness to purchase. Additionally, the COMEX copper short squeeze led many traders to acquire copper cathode globally for warehouse delivery, which will divert some of China's copper cathode imports. SMM understands that the copper cathode that left China in May is now arriving at LME Asian warehouses, but the incremental volume per batch is limited, offering little boost to the SHFE/LME price ratio.
In terms of exports, the export window further opened in April, and the SHFE/LME copper price ratio worsened, with maximum losses reaching 1,500 yuan/mt. Following the May 15 COMEX squeeze, large traders in China concentrated on acquiring foreign brand warehouse receipts for COMEX delivery, with these shipments expected to leave in June. Overall, exports in May are expected to rise significantly, and exports in June are expected to remain high.