Yangshan Premium Falls to Zero as Chinese Copper Demand Weakens

The Yangshan premium, a key measure of Chinese copper demand, reaches zero for the first time on record, signaling extremely weak appetite for imported copper cargoes in the world's largest copper market. This development comes despite copper prices on the London Metal Exchange (LME) rallying to a two-year high near $10,000 per ton.

Traders report that Chinese consumers are reluctant to buy copper at these elevated price levels, effectively capping further gains. End users in China are rejecting the current copper prices and asking for delivery deferrals in the hope that the market cools. The decline in the Yangshan premium has been ongoing for months, reaching zero in the available data since 2017, which analysts attribute to a sobering caution for imported copper.

The situation in China is further complicated by rising inventories and spot prices trading at a discount to futures, indicating an oversupply in the domestic market. This has led to smelters beginning to export refined copper to tighter overseas markets. The reluctance of Chinese fabricators to engage with these high prices is due to weak downstream demand and the challenge of passing on rising costs to consumers.

Despite the headwinds in China, the global outlook for copper remains somewhat optimistic, driven by improvements in global manufacturing and the metal's critical role in the energy transition. However, the market's trajectory is contingent on the ability of processors to transfer rising costs to consumers amidst operational and cash flow challenges. Goldman Sachs analysts expect LME copper prices to hit $12,000 a ton within the next 12 months, but the general consensus is that sustaining these levels will depend on the magnitude of the projected deficit in the inflow and copper market this year.

Key Takeaways

• Yangshan premium, a key copper demand gauge, reaches zero, signaling weak Chinese demand.
• Chinese consumers reluctant to buy copper at high prices, leading to delivery deferrals.
• Rising inventories and spot prices trading at a discount to futures indicate oversupply in China.
• Weak Chinese demand could have significant implications for the global copper supply-demand balance.
• Global copper outlook remains optimistic, but sustaining high prices depends on projected market deficit.