Chinese copper importers control the amount of tonnage they buy through annual supply negotiations, which are the bellwether for the global metals market, and opt for spot supplies.
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(Bloomberg) — Chinese copper importers are reining in the amount of tonnage they buy through annual supply negotiations, once the bellwether for the global metals market, and are opting for spot supplies.
By 2025, buyers in China will take less refined metal under annual contracts than this year, including from producers like Chilean copper giant Codelco, according to six traders with direct knowledge of the discussions on the sidelines of a major industry event in Shanghai.
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The change in buying patterns comes as China’s copper demand slumps after a decades-long boom. Asian nations have also increased their own domestic capacity, limiting their need for imports.
The premium in the spot market for imported copper fell below zero earlier this year, prompting buyers to agree annual fees at Asia Copper Week last year at $89 per ton. The premium is an additional fee paid above the London Metal Exchange price by Chinese traders and manufacturers.
“Many clients and friends have lost a lot of money this year from terms signed. No one believes the spot premium will increase much for next year,” Ni Hongyan, deputy general manager of Eagle Metal International Pte., which is registered in Singapore, said. in an interview in Shanghai.
That view echoes that of executives from other trading houses in the world’s top commodity markets. Private and state-owned companies will take the same approach with low margins, he said. Most of the executives asked not to be identified because they are not authorized to speak publicly.
Codelco did not immediately respond to a request for comment.
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Rolling Over
Talks in Shanghai to decide annual premiums and volumes have been a closely watched ritual in the copper market since the turn of the century, when China’s fast-growing economy became a dominant importer of commodities including copper.
But the significance of the annual premium – set by Codelco deals with major customers – has decreased, and this year is seen as a watershed moment. Codelco offered a premium at $89 per ton this week, the same as last year, traders said. That is higher than the current point level near $50 and far from traders’ expectations for the annual offer, they said.
The future of China’s copper industry after years of spectacular expansion in output and demand has dominated discussion at seminars, cocktails and negotiations in Shanghai.
Consumption will grow at 2.9% next year, down from 4.2% in 2024 as the real estate crunch offsets hotspots including renewable energy, CRU Group researchers said. Without greater government stimulus, demand is unlikely to recover significantly, according to Eagle Metal.
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China has seen a dramatic acceleration of smelter construction over the past two years. That means there is a large domestic supply and more reliance on imported ore, rather than the metal shipped from Codelco. Imports of refined copper this year are hardly higher than ten years ago.
The reduction in annual contracts could lead to greater uncertainty for offshore copper miners due to less guaranteed profits with floating prices. Codelco may also try to diversify its markets away from China to places including the US, traders said.
However, for buyers, there is a risk that greater reliance on the spot market exposes them to potential market reversals that could lead to a rebound in premiums.
—With assistance from Mark Burton.
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