London 06/07/2016 - Some of the copper being delivered into LME-listed warehouses in Southeast Asia appears to be from significant stockpiles sat in Shanghai's bonded zone, FastMarkets' analysis suggests.
Since FastMarkets first reported on April 4 that Chinese producers and several trading houses were looking at warranting significant amounts of material, a net 124,900 tonnes have been delivered into warehouses in South Korea, Singapore, Malaysia and Taiwan, including 34,150 tonnes in the last two days.
Over the same period, large inflows into Shanghai's bonded zone since February have consistently decreased - the incremental value was down some 50 percent from April to May.
In May, stocks of copper cathodes increased just 30,000 tonnes or five percent to 610,000-640,000 tonnes compared with an increase of 50-60,000 tonnes in April, 80,000 tonnes in March and 90,000 tonnes in February.
The slower increase last month mainly reflects an improved arbitrage window - although this has not been open since before Chinese New Year in February, the losses incurred when importing copper to China are narrowing.
But some trading houses with large positions or with cathodes booked under long-term contracts have been diverting tonnages to nearby LME-registered sheds, warehouse sources confirmed.
"Premiums were sluggish in Shanghai at around $40-50 per tonne at the end of May - some distressed sellers were even offering at $20-30. Those who signed long-term contracts are better off changing their shipment destination to nearby LME warehouses," a copper trader in Shanghai said.
"We have seen less material coming into our sheds and most of that is heading to our branches in Southeast Asia," a warehouse source said.
Some of the metal is from Swiss trading company Trafigura, sources suggested at LME Week Asia, although several other trading houses have also been involved as have many producers, FastMarkets understands - smelters were keen to take advantage of the $65 offered by some warehouse operators to warrant metal although the nearby contango has forced incentives lower.
The contango on the benchmark cash-3s spread on the London Metal Exchange moved out to $18 from $10 on Tuesday last week following the deliveries - a reversal from the $28 backwardation in the market at the end of May.
(Additional reporting by Vicky Chen, editing by Mark Shaw)