China’s copper producers and traders are riding an unexpected surge of business that has pushed physical prices to their highest in nearly two years as fabricators rush to buy refined metal to avoid import tariffs on scrap that kick in on Thursday.
The buying spree took off after Beijing announced two weeks ago it would hit $16 billion worth of U.S. imports, including scrap metal, with duties of 25 percent from Aug. 23 in retaliation for a similar move by Washington.
The United States is one of China’s biggest copper scrap suppliers.
The surge has given short-term relief to the world’s top market for the metal, often taken as a bellwether for the health of China’s economy and dubbed “Dr. Copper”, as demand growth had slowed just as a wave of new capacity was due to start up.
Physical copper premiums in China SMM-CUYP-CN jumped to as high as $91 a tonne this week, the most since November 2016, and are up 13 percent in the past two weeks alone. Five weeks ago the premiums were languishing near 10-month lows.
The premiums for physical deliveries are paid by Chinese copper importers on top of benchmark London Metal Exchange futures prices CMCU3, which have fallen by around 18 percent since hitting a four-year high on June 7.
Three traders attributed the spike to tighter supply of scrap copper, as Beijing also continues a campaign against foreign waste to stop being seen as a dumping ground for the world’s garbage.
“Some people who use scrap are turning to cathode, especially cheap African cathode,” said a trader based in Hong Kong. Democratic Republic of Congo and Zambia are two of the world’s top copper producers.
Cathodes are refined copper typically processed into rod and wire and used in infrastructure and construction.
A profitable arbitrage window to import copper into China has also increased premiums, adding momentum to a typical move as benchmark futures prices fell due to concerns that the trade row will hurt demand for industrial metals.
Copper inventories in warehouses monitored by the Shanghai Futures Exchange CU-STX-SGH have fallen by more than 40 percent since end-June, further boosting premiums.
The tariffs “will likely mean additional cathode imports would be required to replace the lost copper contained in scrap,” said Wood Mackenzie senior consultant Yanting Zhou.
Source: Reuters
