Shanghai Copper Inventories Expected to Decline, Potentially Triggering Price Surge

SHANGHAI: Forecasters anticipate a further drop in copper inventories on the Shanghai Futures Exchange (ShFE) this week. This continued reduction could lead to a sharp price increase, according to several market analysts.

Traders suggest that the rise in ShFE copper prices, vital for China’s extensive manufacturing sector, will draw more metal to exchange warehouses. However, a total depletion of stock is deemed unlikely.

The scarcity is already reflected in the Yangshan copper premium, which assesses China’s demand for copper imports.

On Monday, the premium was $93 per ton, marking the highest level since December 2023 and a rise of over 40% since January 2.

Last week, copper inventories on the ShFE experienced a significant decline, dropping by 32% to 116,753 tons. This decrease represents the largest percentage drop on record, driven by local buyers taking delivery of metal acquired during a price dip earlier in the month.

One trader speculated that ShFE copper stocks could decrease by an additional 10,000 tons when warehouse figures are released on Wednesday, which is earlier than usual due to public holidays in China from May 1 to May 5.

Copper shipments were redirected to the US amid concerns about potential tariffs on US imports. This shift contributed to a decrease in ShFE stocks and increased prices on COMEX.

Consequently, COMEX stocks surged to 137,759 metric tons on Tuesday, a 45% increase since January 2 and the highest level since December 2018.

The threat of tariffs on US imports has driven up prices on COMEX, while the anticipation of higher prices has encouraged shipments to the US, thereby inflating COMEX inventory.

Chinese consumers are encountering challenges in securing supplies in an already constrained Chinese market. This difficulty is partly attributed to US-China trade tensions, which have diminished a significant source of scrap metal from the United States.

Typically, copper prices on the ShFE are higher than on COMEX due to supply and demand differences between China and the US, along with factors like freight and taxes.

However, COMEX copper prices have frequently been higher since mid-March due to speculative buying in anticipation of import tariffs.

Traders anticipate a return to the normal price relationship as the need to replenish Chinese inventories becomes paramount. One trader mentioned that the expectation of higher prices on the ShFE could also attract metal stored in Shanghai’s bonded warehouses.

As of April 24, stocks in these warehouses totaled 75,500 tons, a 5% decrease week-on-week but nearly five times the low of 15,200 tons recorded on January 16.