Copper prices were at a high level in early August on the back of a series of positive macroeconomic policies. Fitch lowered the credit rating of the US, pushing down global share price index futures. In addition, the United States released the core PCE price index and the job market cooled as expected. The market expectations for a soft landing in the United States have gradually increased. The US dollar remained strong, pressuring copper prices. The continued decrease in overseas demand, coupled with weak domestic demand, undermined market confidence in the Chinese economy. As such, copper prices continued to fall, and once dropped to the 67,000 yuan/mt mark.
In the second half of August, the Chinese government once again released a string of favourable macroeconomic policies to stimulate the domestic demand, including the further cut in the Medium-Term Lending Facility Rate in a bid to increase liquidity. The Ministry of Finance, the China Securities Regulatory Commission, and the three major exchanges all announced major policy adjustments, including those to stamp duty policies, IPO, refinancing, financing, and reduction of shareholding. The refinancing of listed real estate companies is not restricted even if their stocks prices fall below the issue prices or the net asset value per share, or even if they incur losses. Subsequently, first-tier cities including Beijing, Shanghai, Guangzhou and Shenzhen announced that mortgages will be treated in the same way as a first mortgage for a buyer who does not have any house locally, regardless of whether the buyer has already bought any house in other regions of China. This is aimed at boosting the real estate consumption. The market sentiment thus improved, pushing up the most active SHFE copper contract prices to the 70,500 yuan/mt mark.
Fundamentally, the copper concentrate supply is expected to be adequate. But spot TCs should fall in the near term. Smelters will restock inventories for production in winter before the negotiations on the benchmark TC of long-term contracts in 2024 start. China's copper cathode output in August was 989,000 mt, an increase of 63,100 mt or 6.8% month-on-month, and a growth of 15.5% year-on-year. As of September 11, the social inventory of copper cathode across China’s mainstream markets stood at a low level of 88,600 mt, underpinning copper prices. Downstream consumption still shows strong resilience as the operating rates of copper semis producers improved significantly when copper prices fell.
A barrage of favourable policies for the real estate sector in September bolstered market confidence. Informal financing data topped expectations, and credit growth is expected to remain strong. China's economy is expected to rebound. As such, copper prices will have impetus to rise. On the other hand, the U.S. economy remains resilient after multiple rounds of interest rate hikes. The job market and inflation rate are gradually cooling. Market expectations for a soft landing for the U.S. economy have increased. The U.S. dollar will remain strong in the near term. This will cap gains in copper prices. The most active SHFE copper contract prices are expected to move between 67,500-70,000/mt in the near term, and LME copper will trade between $8,150-8,400/mt.
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