London 13/06/2016 - The arbitrage window between London Metal Exchange copper prices and those on the Shanghai Futures Exchange has opened marginally for the first time since before Lunar New Year in February, according to FastMarkets and brokerage data.
Following a large drop in the London price last week - three-month copper ended the week down around four percent or $178 from Monday - the Shanghai price closed on Monday between parity and a small premium to the LME (plus logistical premiums).
Should the arbitrage ratio continue higher, imports and demand are likely to increase and could provide a boost to the Chinese copper market , traders said.
Copper cathode premiums in Shanghai are trading close to the lows of 2012, according to FastMarkets' records - it was last at $40-50 on a cost, insurance and freight (CIF) and on a bonded basis. Still, deals have been heard lower - particularly when, according to FastMarkets' last assessment, there are around 600,000 tonnes of copper in the bonded zone.
Using a CIF premium in Shanghai of $50, the arbitrage was between parity and a small premium of around $30-40 at the close of the June prompt on Monday.
While Shanghai consumes large volumes of copper every year, many believe that the depressed premium in the country largely reflects the lack of arbitrage opportunities between the two exchanges for the last few months.
Still, at least one large trading house is awaiting a better opportunity before making any moves on the arb, citing the recent fall in the yuan as a major concern.
The Chinese currency is at its worst since the start of February at 6.5980 against the dollar, having lost nearly two percent of its value since the end of March.
Three-month LME copper was last up $65 up on Friday's close at $4,580 per tonne.
(Editing by Mark Shaw)