Shanghai Exchange Suspends Bonded Delivery for Copper and Aluminum Contracts From October 29
Key Facts
The Shanghai Futures Exchange suspended bonded delivery services for its copper CU and aluminum AL contracts from October 29, according to an exchange notice. The decision limits the suspension to the service associated with the two contracts and does not cover all metal deliveries or regular delivery. Shanghai Metals Market, known as SMM, said the notice does not affect regular delivery for BC copper, Shanghai copper and aluminum contracts. The company quoted the notice as saying, "This announcement does not affect regular delivery" for these contracts. The measure is therefore confined to bonded delivery services, while the regular delivery mechanism remains in place, according to SMM.
The suspension came as indicators in the physical copper market showed higher import premiums into China. The average premium for imported copper warrants in Yangshan was $205 per tonne on October 28, up $17 from the previous trading session, according to SMM. The average copper bill of lading price was also 195 yuan per tonne that day, up 20 yuan from the previous day. The average CIF premium for EQ copper bills of lading was $95 per tonne, up $2 from the previous session. These figures reflect daily moves in different premium and freight measures and do not in themselves indicate the reason for the exchange's decision.
SMM attributed the rise in premium offers to a deepening shortage of available supply in the market. It said, "A shortage of available supply prompted suppliers to continue raising offers," describing activity in the physical market. From October 26 to 29, the weekly average trading range for Yangshan copper warrant premiums was $181 to $205 per tonne, averaging $193 per tonne, according to SMM's weekly review. The company linked tight supply to tighter domestic raw material supplies and extensive maintenance at smelters. It also cited shipment delays caused by weather, including typhoons. These factors put physical market pressures in a context separate from the suspension of bonded delivery services.
This coincided with a decline in inventories in China's bonded zones. Copper inventories there fell by 1,200 tonnes week on week through October 29 to 26,800 tonnes, according to an SMM report. The comparison was with the previous period ending October 22. The decline adds another indication of shrinking available supply in those areas, alongside Yangshan premiums, which averaged $193 per tonne for the week. The figures show inventory and premium movements over the same period, while SMM did not explicitly link these indicators to the exchange's decision.
On industrial demand indicators, China's official manufacturing Purchasing Managers' Index stood at 50.1 in September, compared with 49.8 in August, returning to expansion territory, according to the National Bureau of Statistics of China. The reading rose 0.3 percentage points from the previous month. The production index was also 51.7% and the new orders index 50.5% in September, according to the bureau. These readings offer a picture of factory activity and new orders in the previous month, as tight physical supply drew attention to China's domestic copper market. September's reading was in line with economists' expectations, according to the Associated Press.
Available market data show the reaction in U.S. copper on October 29: it closed at 6.6065, after closing at 6.6715 the previous day, according to EL7 data. That puts the daily close in the context of the move between the two sessions, but does not establish that Shanghai's suspension of the delivery service caused the change. The comparison between the two closes remains separate from China's premium and inventory indicators, which describe physical market conditions within the country. The available information did not include a price for the reaction in Shanghai copper to the decision.
China's National Bureau of Statistics is scheduled to release its October Purchasing Managers' Index report on October 31 at 9:30 a.m., according to its official calendar. The calendar notes that release dates are preliminary and subject to change. The next reading will be the latest official indicator of manufacturing activity and orders after the index registered 50.1 in September and returned to expansion territory. It is due two days after the Shanghai exchange suspended bonded delivery services for its copper and aluminum contracts. The calendar does not specify the reading's result or direction, only the scheduled publication time for the report.