Shanghai copper premiums whipsaw

The range for copper prices has not been particularly wide through June, with the 5% intra-month difference between  the highs and lows very similar to May.

Premium assessments for Shanghai delivery, however, have moved much more wildly. After reaching ~$120/t in May, premiums crashed to ~$65t as the Qingdao metals probe hit the headlines in June.

More recently, however, premiums have recovered to a little over $100/t.

There doesn't appear to be a huge amount of evidence that the most recent scare surrounding metals financing has permanently changed activity or undermined copper prices.  So far there are no signs Chinese metal has been moved into foreign exchanges, with flat prices and premiums recovering.

While cash prices have mostly recovered the recent losses, the significant backwardation of ~$90t seen in early June remains elusive.

If markets have mostly shaken off the latest concerns about metals financing, then perhaps we should see the backwardation widen, at least in the short term.

It seems likely that China's pull on global refined copper will be weaker in the coming months. Headline indicators of activity appear to have stabilised, but are not particularly strong.  Manufacturing is also heading into a seasonally softer patch.

But this won't be a huge problem given exchange stocks are already a lot lower than they have been for sometime.  So it won't take much Chinese interest to keep spot interest in metal tight.

Global mine production continues to be pretty strong, although so far this year there aren't any signs that this is leading to surplus.

Even with stronger output from countries like Chile and Peru and from Africa, TC/RCs are reported to have headed a little lower as Indonesia continues to restrain concentrate exports and demand remains decent.

This may embolden bulls to be outright bullish on flat prices, which have rallied strongly in late London trading. I'd still be cautious.

So far the bouts of weakness in the copper price have centred around financing concerns rather than Chinese macro economic weakness.  While some aspects of the macro picture look to be stabilising, other areas like property still look worrying.  Given that prices are not particularly weak, I'd still expect prices to fall on a 3-6 month view.  But it must be recognised that activity has been better than expected in the year to date.