Copper prices in Shanghai have flipped into modest backwardation in anticipation of robust Chinese demand, as expectations that President Donald Trump will impose tariffs on the metal lure refined supply to the U.S. to profit from the price gap.
The front-month April copper contract on the Shanghai Futures Exchange closed at 81,900 yuan ($11,277.88) per metric ton on Tuesday, 0.75% higher than the closing price of the September contract.
Backwardation occurs when the price of a near-month contract is higher than that of a longer-term contract, indicating concerns about current supply.
“The current backwardation is minor, meaning it’s not acute supply concern. The backwardation is there because current copper demand is pretty good in China,” a copper trader said.
Two other traders in China said the pricing dynamic is also driven by higher Chinese refined copper exports and copper smelters’ maintenance in March due to scarcity of copper concentrate, which is refined copper’s key raw material.
China’s customs data showed a 119% annual increase in refined copper exports for the first two months of this year.
“A lot of copper has flowed to the United States, enticed by higher prices there, resulting in fewer imports; China also shipped more cargoes in the first two months of the year, and stocks continued to fall,” said a fourth trader.
The Yangshan premium, a closely watched indicator of China’s appetite for importing copper, jumped by 114% from early March to $75 a ton, the highest since January 20, LSEG data showed.
Meanwhile, stocks of refined copper fell by 4% on the week to 333,600 tons on March 24, which is 13.9% lower than the year before, a survey from consultancy Shanghai Metals Market showed.
“There might be risk of short-squeeze in the Shanghai exchange later,” the third trader added.
The sources requested anonymity as they are not authorised to speak publicly.
($1 = 7.2620 Chinese yuan renminbi)
(Reporting by Amy Lv in Beijing, Violet Li in Shanghai and Pratima Desai in London; Editing by Tony Munroe and Krishna Chandra Eluri)
