China’s billion-dollar cash-for-copper trade grinds to a halt. china copper markets
For now, the miners, traders and financiers arriving in London this weekend for the annual LME Week jamboree are largely cautious on the near-term prospects for copper, given concerns about the global economy. But many in the market say they are braced for price spikes when the macroeconomic news eventually improves. And without its buffer of bonded stocks, any pickup in Chinese demand could have an explosive effect on the market.
But China wasn’t actually consuming all that copper — at least, not right away. Instead, the traders directed it into the bonded stockpile, using the metal to raise financing. An expansion of government credit to support trade and infrastructure meant there were many easy opportunities for companies to raise money with copper — using bank lines for import financing or repurchase agreements, known as “repos,” to turn their metal inventories into short-term cash.
JPMorgan and ICBC Standard Bank have not entered new metal financing trades for bonded metal since September, and people familiar with the matter said it’s not clear if they will restart. But the consequence of the collapse in stocks is already being felt in the market. Copper for immediate delivery on the Shanghai Futures Exchange traded this month at a 2,020 yuan premium to copper for delivery in three months – the most since 2005. Physical premiums — which are paid over and above exchange prices to secure physical metal — have risen to the highest in nearly a decade at Yangshan, in Shanghai’s bonded zone.