London 15/07/2016 - A growing number of copper cathode traders in China have switched their focus to the concentrate market in the search for profits, reflecting the gloomy outlook of the cathode market.
Physical copper premiums have sunk over the past few years - spot rates were last at $45-55 per tonne CIF and in-bonded warehouse over LME cash prices, down as much as 79 percent from a peak of $210 in Shanghai in August 2013, the highest since FastMarkets started to record rates in September 2009.
With rates in Shanghai having averaged $63-65 per tonne in the year to date, "there's no future of the [copper] cathode market", a cathode and concentrate trader told FastMarkets.
Market participants identified a precipitous fall in financing demand as the main reason for the radical change of the cathode market. Copper financing was a core business for many trading houses in Shanghai until a massive tightening of credit triggered by the Qingdao fraud scandal in 2014.
"When the financing-demand-driven market was prosperous, we prioritised financier clients but ignored end-user customers, and now it's difficult to get the latter back to our office," said a second trader who has recently moved to concentrates after around 10 years in cathode.
"The glory days have gone," he added, noting that his company would lose money if it offered competitive premiums in the current price environment to attract end-users.
Many other traders similarly reported struggles to make profits on cathode business - one even admitted that "every single contract [it] signed recently was money-losing".
"The profits [we are making] from copper concentrate are higher than cathodes, relatively speaking," a third concentrate trader at a leading trading house, who transferred to that sector from refined copper, told FastMarkets.
The upstream copper concentrate market is less transparent than the downstream cathode market - a fourth trader highlighted variable such as the differing copper content levels in concentrate as well as presence of other metals such as gold. The greater the opacity of a market, the more chances to make money, market participants said.
"There are more tricks in concentrate market and it's more complicated than cathode business - I'm still learning by working," the first trader said.
"When the ship starts to sink, you have to jump to the nearest lifeboat - no matter how hard it is," the second trader added.
(Editing by Mark Shaw)