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Copper inventories on the Shanghai Futures Exchange (SHFE) are expected to fall further this week, following a 60% drop in April. The swift drawdown could push copper prices higher and create a stronger incentive for traders to ship copper back to China. With demand surging, particularly in the face of U.S.-China trade tensions, the Yangshan copper premium has hit a new high. This could deepen backwardation in the market, making near-term copper contracts more expensive than longer ones. While domestic copper production remains the main source for China, the rising price disparity between markets may result in increased copper imports.

Key Highlights

* SHFE copper inventories have declined by 60% in April.

* Further drop in copper stocks expected, lifting prices.

* Backwardation deepens, indicating tight supply.

* Yangshan copper premium surges to $100/ton, highest since Dec 2023.

* Copper imports expected to rise as price gap widens.

Copper prices on the Shanghai Futures Exchange (SHFE) are seeing upward momentum as inventories continue to plummet. Following a sharp 60% month-on-month decline in April, reaching a low of 89,307 metric tons, further stock reductions are anticipated. Traders expect a continued drop this week, which could trigger price increases and a deepening of backwardation, a condition where near-term copper contracts are priced higher than longer-term ones.

The rising copper prices are being fueled by the current tight supply and strong demand in China’s manufacturing sector. With ongoing U.S.-China trade tensions, copper imports from the U.S. have increased, with Chinese buyers now paying a premium for imported copper. The Yangshan copper premium has risen to $100 per ton, reflecting this demand shift and marking the highest level since December 2023.

The current market dynamics, which include a mix of lower domestic copper production and increased imports due to price differences between domestic and international markets, could exacerbate the tight supply situation. This has led to increased deliveries of copper that were booked when prices were lower, contributing to the further drawdown of SHFE stocks.

In conclusion, copper's tight supply situation is likely to continue, pushing prices higher and encouraging more imports into China.

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