China is running short of copper, even with weak demand. Here's why

What happened

In Shanghai, buyers of copper cathode paid a record average premium of 2,615 yuan (about $392) a tonne above the futures price on 6 November, according to Shanghai Metals Market (SMM), up 515 yuan in a single day and roughly triple the level two weeks earlier. The gap between the November and December futures contracts widened to about 2,000 yuan a tonne. Stocks of deliverable metal in Shanghai Futures Exchange warehouses fell to 4,327 tonnes; copper held across China's main markets was about 62,600 tonnes, less than half its level a year earlier.

Trafigura, one of the world's biggest copper traders, has been buying large volumes in Asia for November and December to sell into the region, Bloomberg reported, contributing to the scramble. Premiums for imported copper tracked by Fastmarkets have risen to their highest since its data began in 2017.

Why there is a shortage without strong demand

China uses nearly 60% of the world's copper, for wiring, power grids, cars and construction. Demand there is lacklustre this year. The squeeze comes from supply. Chinese smelters, which turn ore into refined metal, are short of feedstock: mined concentrate and scrap. Eleven smelters had maintenance in October, and domestic output fell 3% on the month, SMM said. Exports from the Democratic Republic of Congo, China's biggest source of refined copper, have been disrupted by a crackdown on illegal mining.

The other cause is trade policy. Traders expect the US to impose tariffs on copper imports, so for two years they have shipped metal to the US before any tariff arrives. More than 70% of the London Metal Exchange's stocks were in US warehouses as of 5 November, according to SMM. China's imports of refined copper fell 16% in the first nine months of the year.

What the price structure tells you

When metal for immediate delivery costs much more than metal for next month, the market is in backwardation, a sign of a shortage now that buyers expect to ease. It is the same signal oil markets have been sending since the war with Iran began. High premiums can also cause their own reversal: some Chinese fabricators have idled furnaces rather than pay them, and a large enough premium could make it worth shipping US stockpiles back to Asia, if tariffs were ruled out.

Where it sits in the chain

Raw material prices enter at the start of the chain (Link 1). Copper feeds into the cost of electrical equipment, cars and the power infrastructure that data centres need.

What to watch

• The Shanghai spot premium and the futures spread after the import expo restrictions end on 10 November.
• Any US decision on copper tariffs.
• China's industrial output and trade data this month.