China Cu Import Might Recover with Higher SHFE Price

Copper metal price at Shanghai Futures Exchange (SHFE) became higher than the price at London Metal Exchange (LME) in September. SHFE copper price maintained lower than LME price since February 2008. Chinese consumers have decreased copper metal import and increased procurement of domestic copper when SHFE price stayed relatively low and domestic smelters were increasing outputs. However, some consumers are returning to purchase LME based copper metal currently. Chinese copper import might recover with this price trend.LME copper spot price (settlement) was US$ 6,861 per tonne on 10 September while SHFE spot price was 58,060 yuan per tonne on the same day, which was as much as approximately US$ 7,300. SHFE price was higher than LME price by more than US$ 400. SHFE price returned higher than LME price on 29 August, after a half year, and the price gap is widening this month.LME copper price dropped down by 15% from the recent high at the beginning of August. LME’s copper inventory exceeded 200,000 tonnes for the first time in late 8 months during this period. The background is weakening demand in Japan, USA and Europe.There seems another reason for LME inventory increase. SHFE’s copper inventory is decreasing by 60% from the recent peak in July. A rumor is that some traders purchased cheaper copper metal at SHFE and brought it to LME designating warehouses for getting margin.As a result, copper supply and demand balance tightened at SHFE and backwardation between spot price and 3-month future price expanded by 7 times from the beginning of August. SHFE spot price currently declined by only 6% when LME price plunged down. Consequently SHFE spot price became higher than LME price.