Copper for immediate delivery in China has been more expensive than the metal for future deliverysince May 9, and this price structure may persist as importsinto the world’s largest user slumped.
The so-called backwardation, signaling limited supplies inthe near future, has developed on the Shanghai CommodityExchange, the country’s biggest metals bourse, said KennedyZhou, manager at Shanghai Hedge International Trading Co.China’s refined copper imports in June dropped to the lowestlevel in 10 months as demand for the metal shrank.
“Supply has become tight as importers are sitting on thesidelines now,” Zhou said by phone from Shanghai today. “Giventhe fact that Chinese copper prices are cheaper than those inthe overseas market, importers lose 2-3 percent of the value ofevery ton of copper they bring in.”
Backwardation occurs when investors who hold shortpositions, or bets on lower prices, are forced to pay higherprices for metal to cover delivery obligations or renew theirbearish bets if less metal is available.
China has cut interest rates twice since early June andlowered the reserve requirement ratio three times since Novemberto bolster growth, which has slowed to a three-year low of 7.6percent in the second quarter. Copper for August-delivery inShanghai closed at 55,080 yuan ($8,650) a metric ton today,while the most-actively traded copper for November deliveryclosed at 54,680 yuan a ton.
Inbound shipments were 250,097 tons in June, compared with301,990 in May, according to the General Administration ofCustoms. Exports tumbled to 35,477 tons from 102,375 tons inMay, the highest since at least 2008, according to data compiledby Bloomberg.
“The backwardation might persist for a while, until theshort-term supply is no longer tight,” said Wu Feng, ShanghaiRising Industry Co.