The Shanghai Futures Exchange (SHFE) has abruptly halted the settlement of copper and aluminum futures with deliveries from duty-free warehouses. This mechanism, introduced in 2010, allowed Chinese traders to avoid paying taxes on metals destined for overseas markets until importation was financially advantageous.
The exchange announced the immediate suspension of the bonded delivery business for copper and aluminum futures on Thursday. According to sources familiar with the matter, the decision was driven by declining interest in these transactions. The SHFE did not provide further comment outside of regular business hours.
Activity in bonded deliveries had spiked in 2018 when an export window opened, but these warrants generally remain costlier and less liquid. The Yangshan premium, a key indicator of Chinese import demand, hit a record high near $200 a ton on Wednesday.
Analysts view the SHFE’s move as a precautionary step to prevent a supply squeeze, as Chinese copper inventories are currently below typical levels for this time of year. Jia Zheng, a trading manager at Suzhou Chuangyuan Harmony-Win Capital Management Co., noted that the suspension could slow metal outflows from China when arbitrage opportunities arise. However, the impact is expected to be limited, with minimal bonded deliveries for copper contracts and more for aluminum.