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  1. #1

    Will China Copper Smelters Increase Exports with LME Backwardation Narrowing? !!!

    Mar 17, 2014 03:55 GMT Source:SMM
    Tags: China copper exports, Shanghai bonded copper stocks, Jiangxi Copper Co.

    SHANGHAI, March 17 (SMM) – With the backwardation on the London Metal Exchange (LME) copper contract narrowing down, Shanghai Metals Market foresees less incentive for Chinese copper smelters to sharply increase their exports as widely reported by various media.

    China's six large copper smelters planned to triple their exports of refined metal to a total of about 150,000 tonnes per month, Reuter reported on Mar. 14, citing Wu Yuneng, vice president of top producer Jiangxi Copper Co.

    A tightening in LME copper spread in late February has sparked speculation of a sharp increase in deliveries and potential exports out of China since.

    However, the official cash-to-three-month backwardation on the LME copper contract has narrowed to around $25 per tonne at present, from as high as $72 per tonne on Feb. 26th.

    In theory, traders will deliver to the LME only when the backwardation is bigger than spot premiums which SMM reports at $110-125 today, and therefore Chinese copper smelters are more likely to deliver to Shanghai’s bonded warehouses instead, according to SMM’s research team.

    History to repeat itself?

    The speculation of a sharp increase in Chinese exports is reminiscent of what happened in May, 2012, when the backwardation springing up to $150 per tonne at the peak, leading to the highest-ever Chinese monthly exports of more than 100,000 tonnes.

    At the time, Jiangxi Copper and other Chinese companies planned to deliver the amount of copper to LME warehouses in South Korea as a result of its need to unwind short positions on the exchange, with Shanghai copper prices trading at a wide discount of over 4,000 yuan ($650) per tonne due to poor domestic demand.

    Because of the large discount, Chinese smelters were losing money as a result of buying concentrates priced basis the LME, and selling cathode priced on the Shanghai Futures Exchange (SHFE). The backwardation on the LME also meant they could not roll over their short positions without incurring losses.

    Deliveries to LME warehouses, by comparison, enabled them to trim their losses, and the rebates offered by warehouses could also cover part of the delivery costs.

  2. #2
    Legendry Member Michael Hodges's Avatar
    Thanks for the info Chinametalsinfo. You can post these updates in our China News Room thread if you want or start a thread of your own to keep your updates all in one place. Either is fine!

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