China’s copper premium spikes on demand from renewables industry

The Yangshan copper premium, or the fee traders pay for imported cargoes over benchmark prices on the London Metal Exchange, extended gains to $102.50 a metric ton, the highest level in a year, according to Shanghai Metals Market. That compares with just $27 a ton at the start of August. Premiums for domestic cargoes have also surged.

China’s copper market has tightened this year with stockpiles depleting to critically low levels as the renewable energy sector leads consumption higher. It stands in sharp contrast to the situation outside of China, where weak demand and a surplus of supply has driven LME spot prices to a record discount to futures.

That market structure — known as contango — has intensified as stockpiles held in LME warehouses climbed to the highest in two years last month. Meanwhile, inventories at the Shanghai Futures Exchange have fallen to near their lowest since 2009, with holdings at bonded warehouses also at depleted levels.

“The Chinese copper market is tight” as demand from solar, new energy vehicles and the power sector keeps beating expectations, said Wang Yingying, an analyst with Galaxy Futures Co. The profit for importing copper also increased last week, according to Wang.

Still, inventories may soon start rising as demand weakens following recent gains in copper prices and the arrival of overseas cargoes, said Wang.

Copper rose as much as 0.7% to $8,486 a ton on the LME, the highest intraday since Sept. 15, before trading at $8,441 a ton as of 11:10 a.m. in New York. Other LME metals were mixed, with aluminum up 0.8% and zinc falling 0.6%.