Near-record high LME prices a magnet for Chinese copper exports

Reuters - Exclusive

May 1, 2024

China's copper producers are planning to export up to 100,000 metric tons of metal, the largest volume in 12 years, aiming to cool a rally that has propelled prices towards record highs and hit their order books, three industry sources said.

Chinese producers are selling into the rally, driven by a speculative frenzy that took copper prices on the London Metal Exchange (LME) to two-year peaks of $10,208 a metric ton this week, close to the record high of $10,845 hit in March 2022, the sources said.

The sources said about the 100,000 tons of copper was likely to leave China over the next few weeks. The last time China exported this amount in one month was in May 2012, data from Trade Data Monitor (TDM) shows.

However, some say shipping 100,000 tons of copper out of China in a few weeks to LME registered warehouses would be logistically difficult, though not impossible.

Two of the industry sources said much of the copper shipped out of China was likely to come through bonded warehouses in Shanghai, where inventories at 77,800 tons compare with 6,600 tons at the start of 2024.

"China wants to push down the price, end-users are putting their orders on hold," a copper trader said. "But I would be surprised if it was that much."

It would also be a fraction of China's total consumption of about 13 million tons a year or around half of global mined supplies. China has copper resources, but not enough for its needs, it is typically an importer.

"LME prices don't translate into what we are seeing in the physical market in China. You can see there is excess metal in stock data and premiums," one of the industry sources said.

Earlier this week, the International Copper Study Group (ICSG) said the global copper market faces a surplus of 162,000 tons this year and a surplus of 94,000 tons in 2025.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange (ShFE) above 287,000 tons from around 33,000 tons at the start of this year are close to four-year highs, a sign of sluggish demand.

The Yangshan premium dropping to a record low near zero signals waning appetite for Chinese copper imports.

"China fundamentals suggest lower prices, but prices are on a tear and smelters keep producing," the copper trader said.

Sources say the arbitrage between LME and ShFE prices is making it lucrative to export copper. The arbitrage is the money that can be made on trading between the two exchanges, taking into account costs which can include freight and taxes and exchange rates.

A source in logistics said producers had been asking about costs of moving copper from China to LME warehouses.

A source at a Chinese copper smelter is expecting to potentially export 20,000 tons a month if LME prices stay near current levels.

Photo: Employees work at a copper smelter in Yantai, Shandong province, China April 26, 2023. REUTERS/Siyi Liu/File Photo
(Reporting by Pratima Desai and Siyi Liu; Editing by Veronica Brown and David Evans) 


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