Global copper futures prices have reached record highs in recent days, with the New York-based Commodity Exchange (Comex), London Metal Exchange (LME), and Shanghai Futures Exchange (SHFE) logging unprecedented levels. However, this frenzy has led to a halt in buying in China's copper spot market due to an absence of demand at these elevated price levels.
On Monday, Comex copper prices hit an all-time high of $5.20 per lb, or $11,464 per tonne, while the LME three-month copper price surged to a record $10,954 per tonne. The SHFE's most-traded July copper contract also reached a record high of 88,930 yuan ($10,875, excluding 13% value-added tax) per tonne.
In China, the world's largest copper consumer, domestic copper fabricators are suffering from a lack of new orders, leading to a negative reaction from the buy side. A copper fabricator source stated that the disconnect between copper futures prices and real demand is hurting many participants, from copper fabricators to end-users.
Spot buying has frozen, with the majority of buyers out of the market, as copper fabricators will produce based on orders and cut production if demand is lacking, according to a trader.This lack of buying is reflected in record-low Shanghai grade A copper cathode premiums, a barometer for Chinese demand for imported copper. Fastmarkets assessed the daily benchmark copper grade A cathode premium, cif Shanghai, at a discount of $5-20 per tonne on Monday, May 20, marking a fresh all-time low.
Additionally, a continued build-up of copper stocks at SHFE-registered warehouses, reaching a four-year high of 291,020 tonnes in the week to May 17, is another indicator of the slow demand in China's domestic market.
Chinese smelters are facing challenges, paying more for copper concentrate and selling refined copper at discounts, while copper fabricators are also at risk due to tighter cash liquidity and the need to pay additional margins following the price surge. Industry participants express concerns that the speculative frenzy on exchanges is ignoring market fundamentals and harming real participants in the industry.
