On the macro front, this week international market focus was on the combined impact of cooling US inflation data and an escalation of the US-Iran conflict. US June CPI and PPI both came in below market expectations, temporarily easing concerns over further US Fed interest rate hikes; at the same time, the US-Iran conflict heated up again, with lingering transit risks in the Strait of Hormuz, providing some sentiment support for copper prices from geopolitical risks. During the week, the most-traded SHFE copper contract mainly fluctuated in a range of 103,000-105,100 yuan/mt, while LME copper showed a consolidation pattern at highs after opening low and moving higher. Domestically, macro news was relatively quiet, and copper prices mainly tracked LME and changes in capital sentiment, overall maintaining a pattern of consolidating at highs with a firm bias.
On the fundamentals side, domestic social inventory of copper cathode continued to destock rapidly, providing strong support for spot premiums. As of July 16, SMM social inventory of copper cathode in major domestic regions fell to 123,400 mt, down 41,600 mt from July 9, with declines most notable in Shanghai and Jiangsu. Supply side, arrivals from both domestic production and imports were relatively low, spot circulating cargoes remained tight, and the backwardation structure for the inter-month spread kept widening, once reaching 290-440 yuan/mt, which boosted supplier sentiment to hold prices firm. On the import front, a recovery in the SHFE/LME price ratio triggered a periodic opening of the import window. Some LME warrants were cancelled and shipped to the Chinese market, and are expected to arrive gradually from month-end to early next month. However, due to logistics and customs clearance delays, the incremental imports in the near term are still unlikely to quickly fill the domestic shortfall. Demand side, it remained in the traditional off-season. Downstream players mainly restocked on a need-to basis, with purchases released when copper prices pulled back, but purchase willingness weakened notably after prices rebounded. High copper prices and high premiums suppressed transactions. In secondary copper, the price difference between copper cathode and copper scrap stayed around 3,000 yuan/mt, lending some support to substitution of secondary copper, but with insufficient end-user orders and limited acceptance of high-priced raw materials, market trading remained unstable.
Looking ahead to next week, on the macro front, attention should remain on changes in expectations for US Fed interest rate hikes and disturbance from the Middle East situation on market sentiment. On the fundamentals side, low domestic inventories and tight spot circulation will continue to support SHFE copper and spot premiums. However, with the import window open, incremental arrivals are likely to materialize gradually from month-end to early next month, and supply tightness expectations may ease marginally. Demand side, the traditional off-season and high copper prices will continue to suppress downstream willingness to chase higher prices, with limited improvement in end-user orders. Overall, copper prices are expected to continue consolidating at highs next week. LME copper is expected to trade in a range of $13,300-13,800/mt, and the most-traded SHFE copper contract is seen trading at 103,500-105,500 yuan/mt. Spot premiums will still find support in the near term, but further upside room will depend on the pace of imported copper arrivals and end-users' actual acceptance of high-priced cargoes.
