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Record discounts on near-term prices against longer-dated contracts on the LME create a lucrative landscape for Asian buyers. Despite oversupply and disruptions, buyers leverage unprecedented discounts to negotiate lower prices, with China’s increasing domestic production adding a strategic edge to the market.
Highlights
Record Discounts: Near-term copper prices on the London Metal Exchange (LME) are facing oversupply, resulting in significant discounts against longer-dated contracts, making it an opportune time for Asian buyers to make purchases at lower prices.
Discount Details: The cash copper’s contango against the benchmark three-month contract hit a record high of $108 per metric ton on Jan. 8, while the discount against the February contract stands at $58 per ton.
Asian Buyer Advantage: Asian buyers are leveraging these discounts to negotiate reduced prices with sellers, particularly for copper used in wire cable production for power and construction sectors.
Supply Disruptions Impact: Despite anticipated disruptions at mines like First Quantum’s Cobre mine in Panama and production cuts by companies like Anglo American (JO:) and Vale, the oversupply situation remains largely unaffected.
Market Dynamics: Alastair Munro, Marex’s senior base metals strategist, highlights that despite potential medium-term changes, the current market is well-supplied with subdued demand.
Negotiation Strategies: Buyers are managing to settle 2024 contracts using the average price of the month when copper arrives at their operations, allowing for cost savings due to the cash contract’s discounts against future contracts.
Chinese Influence: China, consuming more than half of the global copper production estimated at around 26 million tons, has seen increased domestic production due to expanding smelting capacity, with refined copper production in October rising by 13.3% compared to the previous year, reaching 1.13 million tons.
Conclusion
In a copper market marked by oversupply, Asian buyers strategically capitalize on historic discounts, driving negotiations and procurement at favorable terms. The unique dynamics, including record contango and disruptions, blend with China’s growing influence, shaping a landscape where buyers navigate with flexibility to secure cost-efficient copper supplies. The current trend emphasizes adaptability in the face of market intricacies, showcasing the resilience and strategic prowess of Asian buyers in a dynamic global copper trade environment.
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