Crazy Copper "Divert": From London to Shanghai

The global market, starting last year, began to perform a frenzy of "transporting" copper from London to Shanghai: Copper stocks are being "diverted" from the London Metal Exchange (LME) to the Shanghai Exchange (SHFE) and Shanghai Free Trade Zone, but with the sharp increase in inventories, the risk of copper inventory in domestic bonded areas flowing back into the international market or being sold at home is also increasing.

Crazy copper "move"

“From the second half of last year to the present, the global copper inventories transfer trend is significant. With the strengthening of supervision and the speeding up of investment banks exiting the LME warehousing business, LME copper stocks are accelerating to be gradually recessive, with large outflows to Asia, and China’s high premium and financing needs. Attracting a large number of refined copper imports, pushing up the hidden stock of domestic copper continues to rise.” Guo Feng ** analyst Gu Fengda told the “First Financial Daily” reporter.

Data show that LME copper stocks fell from 650,000 tons at the end of last year to 250,000 tons in March this year. At the same time, although domestic SHFE copper stocks have basically remained relatively stable, they have continued to fluctuate around the level of 160,000 tons, but the Shanghai Free Trade Zone Copper stocks have reached a high of about 700,000 tons, becoming a "shadow warehouse" for the accumulation of large quantities of imported refined copper.

It is noteworthy that the current economic slowdown in China, the real economy does not support large-scale copper imports. In the first two months of this year, the growth rate of China's industrial profits fell sharply to the single-digit level, which was the lowest in the past year; HSBC’s China March manufacturing PMI preview value also shrank for three consecutive months, but copper imports did not decrease. According to customs data, China did not import 380,000 tons of copper and copper materials for imports in February, which was a year-on-year increase of 27.5%, a cumulative increase of 25% from January to February; China imported 280,000 tons of refined copper in February, a year-on-year increase of 29.94%, and exports 1.5. Ten thousand tons, down 59.44% year-on-year.

“Since March, the continuous depreciation of *** and the decline in domestic capital prices, including the widening of domestic and foreign price spreads, have significantly increased the cost of ** copper, and copper inventories continuing in the second half of 2013 are approaching the inflection point.” UBS Securities analyst Lin Haoxiang said.

China is the world's largest copper demand country. The latest report from Credit Suisse believes that, despite potential demand from other emerging economies, its demand has dropped significantly since the economic crisis. The growth of refined copper consumption in developed countries has stagnated, and even a tightening has occurred. The current weakness in copper prices is mainly affected by the market’s concerns about China’s economic growth prospects and the impact of default risk.

Domestic selling or returning to the international market?

In the short-term domestic copper demand is still weak, the banking industry’s credit tightening of commodity trade and the devaluation of ***, the risk of ** copper inventories has increased sharply, and the problem is that a large amount of domestic copper stocks will be domestic The market is sold or returned to the international market.

Gu Fengda analyzed that "copper inventories are relatively difficult to return to the LME market. Due to the current supply and demand in Europe and the United States is relatively stable, inventory returns still lacks more premium to promote, and China as the world's largest copper consumer country, its consumption of copper Very large, it is expected that the second quarter will be a concentrated area for domestic smelting and export of copper, and its use as a hidden "barrier lake" of copper supply and demand, will wait for the further return of copper prices and gradual recovery of China's consumption capacity after the import and digestion, the Chinese bonded area has become Balancing domestic and foreign copper inventory imbalance regulators."

In the situation where the return flow is difficult, it will increase the pressure on domestic sales. UBS Securities believes that the continuous depreciation of *** and the decline in the price of domestic funds have significantly increased the cost of ** copper, which is likely to lead to the gradual outflow of ** copper stocks, which will bring continuous supply to the Chinese copper market supply side. pressure.

At the same time, domestic copper consumption is also difficult to grow. According to Guoxin Research, the prospects for the traditional peak season for copper in March and May are not optimistic, and copper consumption growth may not be as high as expected during the peak season.

At present, the market's optimistic expectations for copper consumption growth are concentrated in grid investment. However, some analysts have pointed out that UHV construction in power grid investment has actually limited the consumption of copper. At the same time, due to the economic, security, and possible controversial issues that may cause pollution in coal-producing areas, many UHV construction projects still remain at the planning stage.

However, there are also market participants who worry that with the massive integration of ** copper, **copper is expected to develop towards the steel trade in the case of indigestible domestic demand, and even does not rule out the occurrence of default cases, but currently **copper has not yet emerged Larger risk case.

“**copper mainly obtains cheap ***** with the help of exchange differences and spreads, and its strict hedging and locking mechanism in its trade links makes it highly tolerant of price fluctuations, corporate qualifications and banking supervision. Relatively good.” Gu Fengda told reporters.

According to the Guoxin Securities Report, as *** liberalization and the interest rate liberalization process accelerate, the reduction in domestic gambling spreads and spreads will limit the space for copper, while the United States may raise interest rates or accelerate the use of copper in 2015. The "lifespan" of products under certain conditions in financial markets is reduced.