US Dollar Index Hits New Highs in Recent Years, Pressuring Copper Prices—Will Year-End Consumption of Copper Cathode Benefit? [SMM Analysis]

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At the beginning of 2025, the US dollar index surged to the 109 mark, with the US Fed's short-term hawkish stance stirring volatility in the US bond market. Copper prices experienced significant pressure and declined sharply during the week. With less than a month remaining before the Chinese New Year holiday in 2025, can fundamental consumption benefit from this? Below is the detailed analysis:

Macro side, the imminent end of the debt ceiling suspension has brought the issue of US debt expansion back into market focus, with the 10-year US Treasury yield declining significantly. Market trading on policy uncertainties for 2025 increased, while gold and crude oil prices also climbed during the week, and the non-ferrous metals market broadly declined. LME copper fell from $9,000/mt to around $8,750/mt. Domestically, China's official manufacturing PMI and Caixin manufacturing PMI for December both came in below market expectations but remained above the 50 mark. The resilience of the fundamentals provided support for the copper market. SHFE copper declined from 74,000 yuan/mt to around 73,000 yuan/mt during the week, with strong support at the bottom. In the short term, the likelihood of a sharp decline in copper prices appears low.

Fundamentals side, the copper concentrate index continued to decline this week, and the spot market saw sluggish transactions. Overseas blister copper long-term contract BM settled, dropping below triple digits for the first time in recent years. Sentiment around tight raw material supply showed no signs of easing. For copper cathode, the import profit window remained open due to the decline in the overseas market, but near-port supplies were mostly locked for import, leading to inactive spot trading. In the domestic market, market activity increased with the start of the new year, as traders rebuilt inventory demand, driving premiums significantly higher. However, end-use demand continued to cool.

Looking ahead, the strong US dollar is expected to continue pressuring copper prices, but fundamental demand is unlikely to recover in the short term. As the new year approaches, operating rates for copper semis across various sectors are trending downward, and the tight raw material supply situation will continue to provide support for the domestic market. The spot market is expected to remain sluggish, with end-use consumption likely to recover steadily after February-March.

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