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. The exchange announced Thursday that the bonded delivery business for copper and aluminum futures would stop immediately.
Introduced in 2010, the bonded stockpiles gave Shanghai traders the flexibility to sell metal to international markets when overseas prices were attractive, and to send it through Chinese customs and pay value-added taxes only when importing was worth the costs. The SHFE told market participants the decision was due to dwindling interest in the businesses, according to two people familiar with the matter who asked not to be named discussing non-public information. The exchange did not immediately respond to a request for comment outside regular business hours.
Activity with bonded deliveries picked up in 2018 when an export window opened, but otherwise those warrants are typically costlier and less liquid. Meanwhile, a key gauge of Chinese import demand is trading near a record high. The Yangshan premium, which measures what Chinese importers pay above London Metal Exchange prices, surpassed $200 a ton on Wednesday.
Some analysts see the SHFE's move as a precautionary measure to avoid a further supply squeeze, as Chinese copper inventories are below typical levels for this time of year. Jia Zheng, a trading manager at Suzhou Chuangyuan Harmony-Win Capital Management Co., said in an interview that the suspension could help slow outflows of metal from China when arbitrage between Shanghai and overseas prices motivates such a trade. Zheng said the impact should be limited, with few bonded deliveries for SHFE copper contracts and more for aluminum.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing