On the macro front, copper prices retreated after a rapid rise and then rebounded slightly this week. Early in the week, as the contract approached delivery, the LME spot prices against the three-month copper contract widened to as high as $478/mt, short covering driven by tight deliverable resources for near-term positions, and LME copper shot up to $14,394.5/mt. After the delivery, the squeeze trade quickly cooled down. Combined with consecutive increases in LME inventories and no further deterioration in the Middle East situation, LME copper pulled back to a low of $13,856.5/mt, down $538/mt from the intra-week high, a decline of about 3.74%. On Wednesday evening, after the market digested the US Fed meeting minutes, expectations of rate hikes did not further intensify. Meanwhile, the US Treasury expanded the scale of long-term Treasury buybacks, with the single buyback cap potentially exceeding $4 billion, easing market concerns about the supply and demand pressure of long-term US Treasuries. This led to a pullback in long-term yields, and the US dollar fell to a near three-month low, with LME copper returning above $14,000/mt. On that day, LME copper rose with open interest decreasing by 8,415 lots, indicating that some bears closed positions after the US dollar weakened, driving the copper price rebound, which was not the same phase as the passive short covering at the beginning of the week due to delivery constraints. The rebound later in the week primarily relied on US dollar weakness, and its sustainability still depends on US Treasury yields and US Fed policy expectations.
On the fundamentals side, COMEX inventories continued to increase, while LME inventories and deliverable resources had been declining previously. Regional inventory mismatches pushed the LME near-term backwardation structure to extreme levels. Although total LME inventories rebounded this week, the total includes inventories that have been cancelled and awaiting cargo pick-up, which cannot be directly considered as an increase in deliverable resources. What truly alleviated the delivery pressure this week was the rebound in registered warrants and the decrease in the ratio of cancelled warrants. In China, as of August 20, SMM copper inventories in mainstream regions across the country increased by 16,400 mt WoW to 134,400 mt, with imported cargo return and domestic copper arrivals jointly driving the inventory buildup. Ahead of delivery, the open interest of the SHFE copper 2608 contract converted to metal content was higher than SHFE registered copper warrants, reflecting potential delivery pressure, but the relationship between open interest and warrants was not the only reason for the widening of the backwardation price spread between futures contracts. Limited replenishment of imported cargo in China, tight spot circulation meeting delivery specifications, coupled with concentrated release of delivery demand, jointly pushed up near-month contracts. After the delivery, warrant cargo gradually entered the spot market, supply increased, and suppliers lowered their offers. On the demand side, with copper prices near 110,000 yuan/mt at the start of the week, downstream purchases were significantly suppressed. After copper prices pulled back, just-in-time restocking and trader purchases increased. Some enterprises' orders improved WoW, but this has not yet formed sustained consumption growth. In terms of secondary copper, the decline in copper prices has driven up the purchase willingness of scrap utilization enterprises, but raw material suppliers held back from selling, resulting in limited growth in market transactions.
Looking ahead to next week, the cash squeeze that initially supported copper prices at the start of the week has ended. LME copper inventory rebounded, while China saw inventory buildup and warrant outflows, which will continue to weigh on prices. The US Treasury's expansion of bond buybacks and the lack of further rise in expectations for US Fed interest rate hikes meant the US dollar still provided bottom-line support for copper prices in the short term. A blizzard in Chile led mines to lower their production expectations, which will also limit the downside for LME copper. Should the US Fed release stronger hawkish signals again, a US dollar rebound would further push copper prices lower. Overall, fundamental pressure outweighs macro support, so copper prices are expected to edge lower next week, with LME copper trading in a range of $13,950-14,200/mt and the most-traded SHFE copper contract trading in a range of 106,500-108,000 yuan/mt. SHFE copper, affected by domestic inventory buildup and the release of delivery sources, will underperform LME copper.
![End-user purchase showed weakness, and spot premiums gradually moved down [SMM North China spot copper]](https://imgqn.smm.cn/usercenter/mqFqG20251217171710.jpg)
