The Shanghai Futures Exchange has abruptly halted the settlement of copper and aluminum futures contracts involving deliveries from duty-free warehouses. This mechanism, introduced in 2010, allowed Chinese traders to avoid paying taxes on metals destined for overseas markets. The exchange cited dwindling interest in the business as the reason for the suspension, according to sources familiar with the matter.
The bonded stockpiles system provided flexibility for traders to sell metals internationally when prices were favorable, deferring value-added taxes until importation became economically viable. The decision to end this practice took effect immediately, though the exchange did not provide further comment outside business hours.
Analysts suggest the move may be a precautionary measure to prevent a supply squeeze, as Chinese copper inventories are currently below seasonal norms. The Yangshan premium, a key indicator of import demand, hit a record high of over $200 per ton on Wednesday. Jia Zheng, a trading manager at Suzhou Chuangyuan Harmony-Win Capital Management, noted that the impact should be limited, with minimal bonded deliveries for copper contracts and slightly more for aluminum.
The bonded delivery system saw increased activity in 2018 when an export window opened, but warrants for these deliveries have generally been costlier and less liquid. The suspension could slow metal outflows from China when arbitrage opportunities arise between Shanghai and global prices.