Geopolitical Risks Fluctuate and Rate Hike Expectations Heat Up, Copper Prices Retreat After Rapid Rise [SMM Macro Weekly Review]

On the macro front, copper prices rose before falling this week. Early in the week, high-level US-Iran talks sent de-escalation signals, and with Saudi Arabia resuming exports from Yanbu, crude oil prices continued to pull back. Later in the week, US-Iran relations hit another snag, and the market renewed concerns that geopolitical conflict could push up oil prices and inflation. Meanwhile, the US S&P Global Manufacturing PMI flash reading for September climbed to 57, a near five-year high, and the accelerating rise in input costs further reinforced rate hike expectations. The US dollar and Treasury yields strengthened, and copper prices retreated from highs. During the week, LME copper peaked at $14,799/mt, and the most-traded SHFE copper contract rose to as high as 111,840 yuan/mt. As of 11:00 am on September 24, LME copper settled at $14,578/mt, and the most-traded SHFE copper contract settled at 110,810 yuan/mt.

Fundamentals, both COMEX and LME inventories edged up this week. It is reported that congestion has already emerged at the Port of New Orleans, and about 100,000 mt of African and South American copper is still scheduled to arrive in October. The regional mismatch in global copper cathode supply has yet to ease. In China, SMM copper inventories across major domestic regions fell by 16,500 mt WoW to 72,600 mt, remaining at a low level for recent years. In late September, the SHFE/LME copper price ratio pulled back to 7.6, and import losses widened to more than 1,500 yuan/mt, with the import window closed. Although previously locked-in import cargoes have been arriving at ports, most have flowed directly to downstream users and have not significantly replenished social inventory. At the same time, smelters with copper concentrate processing trade manuals and export qualifications have no clear export plans for now. Therefore, the current decline in domestic inventories stems mainly from limited import replenishment and a shortage of available cargoes, rather than from export diversion, and it should not be seen as a full-fledged strengthening of end-use consumption. Overall supply remains tight. On the demand side, stockpiling ahead of the dual holidays drove a recovery in purchasing early in the week, but after copper prices rose above 110,000 yuan/mt, downstream fear of high prices intensified, and buying shifted back to just-in-time demand.

Looking ahead to next week, market attention will turn to President Xi Jinping's visit to the US and the outcome of talks on China-US trade, tariffs, and other issues. If both sides send de-escalation signals, reduced trade uncertainty will improve market risk appetite and provide support for copper prices. However, rate hike concerns stemming from the US manufacturing rebound and rising input costs have yet to fade. If the US dollar and Treasury yields remain strong, copper's upside will continue to be capped. On the fundamentals side, as the Mid-Autumn Festival and National Day approach, pre-holiday stockpiling is gradually winding down, and high copper prices are curbing downstream consumption, so demand support for copper prices will weaken somewhat. Caution is warranted: domestic inventories are low, but open interest in front-month contract short positions stands at about 70,000 lots. If macro expectations shift, bear short-covering could cause copper price fluctuations. Overall, copper prices are expected to hold steady next week, with LME copper expected to trade at $14,350-14,800/mt and SHFE copper at 109,800-112,000 yuan/mt.