First launched in 2010, the suspended mechanism permitted Chinese traders to store metal stockpiles to either export tax-free or import into the domestic market when profitable. The exchange's move comes at a time when local copper stockpiles are below normal seasonal levels and domestic buying interest is soaring. Reflecting this tight demand, the Yangshan premium rose past $200 a ton on Wednesday to trade near an all-time record. Market observers view the rule change as a preemptive step against supply shortages, though overall volume impacts should stay modest.
Key points
The exchange eliminated the settlement option primarily due to dwindling market participa…: The exchange eliminated the settlement option primarily due to dwindling market participation, poor warrant liquidity, and higher costs.
Domestic copper inventories remain below seasonal norms, prompting concerns about a poten…: Domestic copper inventories remain below seasonal norms, prompting concerns about a potential supply squeeze in the Chinese market.
Halting bonded deliveries is expected to curb metal outflows to foreign exchanges, though…: Halting bonded deliveries is expected to curb metal outflows to foreign exchanges, though the real market disruption will be limited by low contract volumes.
Sources checked by our analysis pipeline: 1
(Bloomberg) -- The Shanghai Futures Exchange has suspended the settlement of copper and aluminum futures with deliveries from duty-free warehouses, a mechanism that has long helped Chinese traders avoid paying taxes on metal that can be sold overseas.
Introduced in 2010, the bonded stockpiles give Shanghai traders the flexibility to sell their metal to international markets when overseas prices are attractive, and send it through Chinese customs and pay value-added taxes only when importing is worth the costs.
The exchange on Thursday announced it would halt the bonded delivery business for copper and aluminum futures, effective immediately. The SHFE informed market participants that the decision was due to dwindling interest in the businesses, two people familiar with the matter said, asking not to be named discussing non-public information.
The exchange didn’t immediately respond to a request for comment outside of regular business hours.
Activity with bonded deliveries picked up in 2018 when an export window opened up, but otherwise, those warrants are typically costlier and less liquid.
A key gauge of Chinese import demand is now trading near a record…
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