US Inflation Exceeds Expectations, Combined with Inventory Buildup in China, Copper Prices Rebound Under Pressure [SMM Macro Weekly Review]

On the macro front, copper prices retreated after a rapid rise this week. US September CPI rose 3.7% YoY, while PPI rose 6.3% YoY and 1.3% MoM. Inflation exceeded expectations, and with retail sales maintaining resilience, expectations for further US Fed interest rate hikes strengthened. As of press time, the probability of a cumulative 25 bp rate hike in October stood at 33.2%. On the US-Iran conflict, the US previously indicated it would not attack Iran before the midterm elections but is still preparing new strike options. The two sides have yet to align their conditions, and ceasefire expectations remain volatile. During the week, LME copper traded at $14,700-14,256/mt, while the most-traded SHFE copper contract traded at 111,500-108,600 yuan/mt. As of 11:00 on October 16, LME copper closed at $14,482/mt, and the most-traded SHFE copper contract closed at 110,170 yuan/mt.

On the fundamentals side, COMEX inventory continued to increase this week, while LME inventory kept falling to 225,000 mt. China's social inventory rebounded to 113,100 mt as imported copper arrivals concentrated, up 12,100 mt WoW. As of press time, LME copper maintained a backwardation structure, while COMEX copper was in contango. The current COMEX-LME price spread stood at about -$34/mt. Considering transportation, financing, and delivery costs, cross-market arbitrage space is limited. In addition, Escondida reached a labor agreement, removing strike risk and easing earlier supply concerns, though attention remains on follow-up developments at the Centinela mine strike. As of press time, the import window reopened, and import profit expanded to 248 yuan/mt, but this level cannot cover capital, logistics, and other costs, making physical arbitrage difficult to support. After the holiday, China's supply improved marginally. High copper prices and the deep backwardation structure further suppressed downstream purchases. Although downstream buying picked up slightly after copper prices pulled back slightly during the week, overall demand remained primarily need-based, not enough to reverse the inventory buildup.

Looking ahead to next week, market attention will remain focused on macro data. Recently released US economic data will serve as important observation points ahead of the October 27-28 FOMC meeting. In addition, China will release Q3 GDP and September industrial, consumption, and investment data on October 19. The key focus will be whether manufacturing investment can continue to support copper demand, and whether property and consumption recovery keeps pace with production growth. If demand data comes in weak, domestic inventory buildup pressure will further limit SHFE copper's rebound. Meanwhile, close attention should be paid to warrant releases after delivery and the replenishment of imported supply, which will determine whether the tightness in available supply can ease further. Overall, copper price centers are expected to shift slightly lower next week. LME copper is expected to trade at $14,100-14,550/mt, while SHFE copper is expected to trade at 108,000-110,000 yuan/mt.