Copper inventories on the SHFE (Shanghai Futures Exchange) are forecast to further reduce at the end of this week. The quick drop in supplies is expected to trigger a rise in prices, which could incentivize traders to resume shipping the metal to China.
In April, inventories of the metal declined on the SHFE by 60% on a month-on-month basis. The end of the month saw stockpiles drop to 89,307 tons. This is the sharpest recorded drop in supplies in the history of the SHFE.
Traders revealed to Reuters that they expected further declines to be announced by the close of business on Friday. If that is confirmed, prices are bound to tick upwards and that may, in turn, promote further “backwardation” for copper on the SHFE. Copper is critical within the country’s manufacturing sector.
Backwardation refers to the practice of pricing longer-term delivery contracts higher than contracts which require delivery within a shorter timeframe. This usually happens when the demand at the moment is high, or when the supply is low. For example, the current price for copper contracts to be delivered early in June this year is 21% higher than a similar copper contract slated for delivery in October. Towards the end of March, the difference was less than 1%.
A trader indicated that some customers were receiving the orders they made prior to Trump’s tariff announcement. As those deliveries are made, inventories are bound to drop even more.
The majority of the refined copper currently trading on the SHFE is domestically produced. However, imports are expected to rise if, as expected, copper prices in China increase when compared to those in other copper markets. On Wednesday, the premium on copper exported to China bumped up to $100 for each ton. This is the highest recorded from December in 2023. The premium has increased by 43% from the start of April.
The trade war with the U.S. hasn’t helped matters. China sources most of its scrap metal from America, and the tensions have disrupted that supply. This has worsened the supply crunch in China.
In contrast, anticipation of U.S. import tariffs drove traders to rush to ship copper to America. This led inventories on the Comex to surge 61% from the closing days of March to date.
All in all, the supply-side concerns in China bode well for producers of copper, and companies like Torr Metals Inc. (TSX.V: TMET) could benefit from this tailwind as concerns grow about the future inventories of this metal in construction hubs around the world.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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