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Buyers of refined copper in China, the world’s biggest consumer of the red metal, may raise their purchases of Russian supply next year to reduce the impact of an expected increase in premiums from other global miners.
Premiums of physical copper sales to China in 2023 are expected to rise to between $150 to $210 per tonne over the benchmark London Metal Exchange price, according to forecasts from four market participants. That would be up from $105 this year and $88 in 2021.
Chile’s Codelco, the world’s top copper miner, raised their premiums for sales to Europe next year to a record $234 a tonne for 2023, up 83% from 2022.
Bracing themselves after Codelco’s hike, Chinese buyers are looking at boosting their Russian shipments, which would likely increase at the expense of the Chilean, Australian and Congolese suppliers they typically use. However, Russian imports are drawing scrutiny amid its invasion of Ukraine with the LME considering a ban on Russian metal for settling contracts and the US potentially banning Russian aluminum.
“If prices did go up to above $150 (a tonne), we would just buy from the spot market instead of signing an annual contract at a fixed premium,” said a China-based copper tube producer.
“We expect to see more copper from Russia flowing into China next year as buyers would be more attracted to cheaper materials they offer.”
Buyers are also hesitant to pay higher premiums amid uncertain demand in China, with ongoing measures to tackle covid outbreaks curtailing growth and a worsening property market also impacting copper consumption.
Consultants CRU Group forecast 2.2% annual demand growth for refined copper in China this year, falling to around 2% next year. That is down from the 5% growth typically seen since 2017.
At the same time, Chinese refined copper production in 2023 is forecast to rise by 6% compared with 2022, after several major copper producers launched new capacity, according to CRU.
With some buyers avoiding Russian metals because of the Ukraine conflict, Russia is expected to sell copper at a discount to offers from Chile and other origins.
“More purchases of Russian copper are very likely if their prices are a lot cheaper and stay sanction-free,” said He Tianyu, a Shanghai-based copper analyst at CRU Group.
However, if the West imposes sanctions on Russian metals, Chinese importers could face barriers on making money transfers through Western banks and using the US dollar to settle transactions, He said.
Russia accounted for 11% of China’s copper imports in 2021 but shipments from the country have surged in recent months. Chile was the biggest supplier at 22%.
Copper arrivals from Russia were 33,033 tonnes in August, 34% higher than the same month last year, China customs data showed.
Prices for imported Russian copper were an average of $7,953 per tonne in August, $141 a tonne cheaper compared with the average price of copper imported from Chile in the same period, according to Reuters’ calculations based on customs data.
Physical premiums for copper have risen with the current price for cargoes imported through the Yangshan bonded warehouse zone at $147.50 a tonne, the highest since February 2014.
(By Siyi Liu and Dominique Patton; Editing by Christian Schmollinger)
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