Early this week, rising US inflation data combined with the continued closure of the Strait of Hormuz kept international oil prices high. Market bets on rate hikes within the year intensified, US Treasury yields climbed and pushed the US dollar stronger, and copper prices pulled back under pressure. Subsequently, Trump paused military action against Iran, the US dollar index weakened, and copper prices staged a recovery. However, prospects for US-Iran negotiations remained uncertain, with Iran insisting on its core demands and disputes over Strait of Hormuz transit fees persisting, keeping the market in a wait-and-see mode regarding negotiation outcomes. By mid-week, Trump indicated that negotiations with Iran were entering the final stage, and some oil tankers departed the Strait of Hormuz, easing geopolitical risks at the margin. The rebound in risk appetite drove copper prices higher. Overall, the macro theme this week remained inflation and interest rate pressures capping upside room for copper prices, while fluctuating US-Iran negotiation expectations and geopolitical disruptions drove futures to fluctuate at highs.
Fundamentals side, supply remained tight overall this week. Early in the week, arrivals of imported and domestic cargoes edged up slightly, marginally easing the tight supply situation. However, as smelters entered concentrated maintenance periods, domestic cargo arrivals shrank and imported cargo arrivals remained limited, tightening spot circulation again, with high-quality copper sources particularly scarce. Demand side, downstream procurement sentiment recovered somewhat during the copper price pullback phase, with actual transactions improving at the margin. However, as copper prices returned to highs, downstream wait-and-see sentiment intensified, with most maintaining just-in-time procurement, and overall market trading activity remained subdued. Inventory side, as of Thursday May 21, inventory edged up 500 mt WoW from Thursday to 243,800 mt, with overall inventory changes limited. In summary, current fundamentals present a pattern where tight supply supports prices while weak demand limits upside elasticity.
Looking ahead to next week, macro logic is expected to continue revolving around US-Iran negotiations, Strait of Hormuz transit, and fluctuating US Fed policy expectations. If US-Iran negotiations continue to progress, easing geopolitical risks may support copper prices, while oil prices and inflation expectations will continue to disturb the market, and a stronger US dollar and US Treasury yields will also cap upside room for copper prices. Fundamentals side, smelter maintenance and tight spot circulation will continue to support the price floor, but demand is unlikely to see significant volume expansion under high copper prices. Copper prices are expected to move sideways in the near term. LME copper is expected to fluctuate between $13,300-13,750/mt, and SHFE copper between 103,000-105,800 yuan/mt. Spot side, against the backdrop of coexisting tight supply and weak demand, premiums are expected to remain firm with fluctuations, and actual transactions will still depend on downstream restocking willingness after copper prices pull back. Spot prices against the SHFE copper front-month contract are expected to range from a discount of 120 yuan/mt to a premium of 30 yuan/mt.
![BC Copper Moved Sideways with a Slight Gain; Price Spread Between SHFE and LME Inverted Further [SMM BC Copper Commentary]](https://imgqn.smm.cn/usercenter/gCNEi20251217171715.jpeg)
