On the 23rd, the main SHFE copper contract closed at 46,870 yuan/ton, down 0.55%. On the same day, LME inventories fell by 3,600 tonnes to 284,000 tonnes, with LME cancelled warrants at 25.4% of total warrants, up from the previous trading day. SHFE copper warrants decreased by 5,213 tonnes to 55,000 tonnes. Last week, SHFE inventories fell by 11,000 tonnes week-on-week to 141,000 tonnes, while Shanghai bonded copper inventories decreased by 16,000 tonnes month-on-month to 310,000 tonnes, marking the 20th consecutive weekly decline. In terms of volume and open interest, on the 23rd, the trading volume of all SHFE copper contracts increased by 58,000 lots from the previous trading day to 241,000 lots, while open interest fell by 7,678 lots to 581,000 lots. For the main contract, top-20 long positions decreased by 773 lots to 70,000 lots, and top-20 short positions decreased by 3,082 lots to 77,000 lots. The 1910 and 1911 contracts continued to exhibit backwardation, but the spread narrowed to around 40 yuan/ton.
In the spot market, the Yangshan copper warrant premium stood at 83 USD/ton on the 23rd, remaining at a high level, with the import profit window still open. The previous day, the LME cash premium/discount was -28 USD/ton, declining along with the futures price. Domestically, according to SMM, Shanghai electrolytic copper spot quotes for the October contract were at a premium of 160-200 yuan/ton on the 23rd, with brand premiums down 25-30 yuan/ton from the previous day. Overall, supply was relatively ample, holders strengthened their willingness to cash out, downstream maintained rigid demand, and most transactions were made to fulfill long-term contract deliveries.
According to data from the General Administration of Customs, China imported 100,000 tonnes of copper scrap in August, down 21.6% month-on-month and 55.5% year-on-year. Cumulative copper scrap imports from January to August amounted to 1.09 million physical tonnes, down 31.5% year-on-year. China's copper imports are gradually shifting from copper scrap to copper concentrate. Peruvian Minister of Energy and Mines Francisco Ismodes said last Thursday that Peru's copper output is expected to grow 27% over the three years through 2022, and that this year's output is expected to reach 2.5 million tonnes, slightly above last year's 2.44 million tonnes. Naoki Kojima, general manager of the marketing department at Japan's largest copper smelter, Pan Pacific Copper (PPC), said on Friday that global refined copper consumption and supply are expected to rise 1.5% and 1.7% respectively in 2020 from the previous year, and forecast a global copper market deficit of 38,000 tonnes in 2020, compared with a deficit of 89,000 tonnes this year.
Recent news of capacity expansion at Peruvian mines suggests the refined copper supply-demand gap may narrow in the second half of the year. In China, the operating rates of wire and cable enterprises rose year-on-year in July and August, the operating rate of refined copper rod producers beat expectations, and power grid investment showed signs of recovery. Entering September, exchange inventories have declined and bonded inventories continued to fall, supporting a fairly optimistic outlook for the "golden September, silver October" season. However, consumption expectations have shown signs of being brought forward year by year, and copper prices have accumulated certain gains since the beginning of the month, while domestic futures prices are stronger than overseas ones. With LME copper inventories still at relatively high levels, SHFE copper may be dragged down by the external market in the short term, and import arbitrage opportunities deserve close attention.
Strategy: 1. Single-side: wait and see; 2. Cross-market: if import profits open, consider long arbitrage; 3. Calendar spread: none for now; 4. Options: none for now. Key factors and risks: 1. Persistent economic downturn weighing on demand; 2. Power grid investment missing expectations; 3. Escalating risk-off sentiment.