London 07/06/2016 - A series of deliveries from Chinese copper producers has lifted LME stocks of copper by 28 percent in the past two days, shrinking a persistent backwardation and easing physical selling pressure on the metal.
According to LME data, copper stocks jumped 21,250 tonnes on Monday and 22,200 tonnes today because of Chinese deliveries earmarked two weeks ago - some from Chinese smelters and some from large position holders in Shanghai's bonded zone.
Total on-warrant stocks have risen from to 196,225 tonnes to 153,675 tonnes on Friday.
But smelters are unlikely to export more in the near future, with consistent falls in SHFE stocks keeping the Chinese market tight.
"We stopped exporting because the arbitrage is improving so for me it's totally subject to the arb," a Chinese copper smelting source said.
Premiums for copper cathodes in China are at 100 yuan per tonne. Although the import arbitrage ratio is improving, consumers will still lose money if they import from Shanghai bonded warehouses where premiums are $40-50 per tonne.
The deliveries in the past two days have eased a persistently strong backwardation on LME copper forward spreads.
The cash/three-month spread has narrowed to just $1 backwardation from $26 on Tuesday last week while June/July most recently traded at a $2 contango, which one trader in Shanghai described as a "dramatic change".
Holders will be less eager to dump their metal, he suggested
"The cost for you to keep stocks in hand is lower so this is a good sign for the market," another trader said.
But should the import arbitrage turn less attractive, exports will resume, market observers said.
"If the arbitrage gets worse then we will continue to export," the producer source said.
(Editing by Mark Shaw)