China's Top Copper Smelters Agree To Exports For Lme Delivery To Ease Backwardation

Following an emergency meeting at the end of October, every Chinese copper smelter with brands eligible for London Metal Exchange delivery has agreed make their own proposals for exporting cathodes to LME warehouses in Asia, including South Korea and Taiwan, two sources with direct knowledge of the matter told Fastmarkets.

The volumes will be “significant,” while each smelter’s export quantity would vary based on their individual situation, they added.

Jiangxi Copper and its subsidiaries have five brands of grade A copper cathodes listed for delivery against LME contracts, followed by Tongling Nonferrous with four LME-approved brands. Daye Nonferrous, Guangxi Jinchuan, Zijin Mining each have two listed brands.

The China Smelters Purchase Team (CSPT) – currently led by China Copper’s raw materials director Feng Mingrui – held the emergency meeting to discuss how the industry should help boost LME copper stock levels and ease the backwardation in the forward curve, sources said.

Representatives from China’s copper smelters – which account for more than 60% of the world’s total capacity – typically meet at the end of each quarter to discuss the procurement pricing floor for spot copper concentrates. The most-recent meeting was held just over a month ago, at which smelters set the fourth-quarter base price for treatment and refining charges (TC/RCs) at $70 per tonne/7 cents per lb.

The lingering backwardation in the copper market has raised financing costs for shorts to cover their positions and has deterred interest in spot trading.

“I am almost being driven mad by the backwardation. I cannot do much spot business [and] not even contractual business would make sense with the backwardation. I cannot even negotiate our long term contracts properly,” an executive at a major Chinese copper trader told Fastmarkets.

At least four major smelters with sufficient inventories are already taking action this week, committing to export more than 25,000 tonnes of copper cathodes, the trader source added.

In mid-October, the cash-to-November spread flared to a record backwardation of more than $1,000 per tonne, following a spate of copper warrant cancellations on the LME.

The situation led the LME to impose a series of temporary measures designed to cool the copper market, with the backwardation easing briefly afterwards.

As of the morning of Tuesday November 2, the backwardation at the front-end of the LME curve was still significant, with the cash/three-month spread in a $438-per-tonne backwardation – the highest level since the all-time high backwardation on October 18.

“The backwardation reflects a crucial lack of liquidity in the LME system. Available stocks are only at 31,475 tonnes while cancelled warrants account for 76% of LME stocks. We expect shorts to struggle to cover their positions, which could result in a notable rebound in the copper price by the end of the year,” said Fastmarkets base metals analyst Boris Mikanikrezai.

CSPT ‘s decision to export copper cathodes is unusual, with China being the world’s biggest copper importer for many years. The country brought 2.58 million tonnes of refined copper in the first nine months of 2021 – a 27.5% year-on-year decline.

Spot copper trading interest has been minimal with participants citing backwardation costs. Fastmarkets assessed the Shanghai copper premium at $80-95 per tonne on November 1, unchanged over the past five days.