China's copper market is tightening and the premium to exchange prices is rising sharply as better-than-expected demand from electric vehicles, solar panels and the power sector reduces inventories.
Yangshan's premium, or the premium traders pay for imports over the London Metal Exchange benchmark price, extended gains to $102.50 a tonne, the highest level in a year, according to data from the Shanghai Metals Market. That compares with just $27 a tonne in early August. Freight rates for domestic goods have also risen sharply.
China's copper market has been tight this year and inventories have fallen to extremely low levels as consumption rises led by the renewable energy sector. This is in stark contrast to the situation outside China. In China, weak demand and oversupply have pushed LME spot prices to record discounts to futures prices.
This market structure, known as contango, has intensified as inventories at LME warehouses climbed to their highest level in two years last month. At the same time, inventories on the Shanghai Futures Exchange have fallen close to their lowest level since 2009 and stocks in bonded warehouses have been depleted.
Wang Yingying, an analyst at Galaxy Futures, said "China's copper market is tight" as demand from the solar, new energy vehicles and power sectors continues to exceed expectations. Profits from imported copper also increased last week, according to Ms. Wang.
However, due to the recent rise in copper prices and weaker demand after the arrival of overseas goods, inventories could soon start to rise.
Copper on the London Metal Exchange rose as much as 0.7% to $8,486 a tonne, its highest intraday level since Sept. 15, and was at $8,441 a tonne at 11:10 a.m. in New York. Other metals traded mixed on the London Metal Exchange, with aluminum up 0.8% and zinc down 0.6%.
